<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
OR
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number 1-3258
LUKENS INC.
50 South First Avenue, Coatesville, PA 19320-0911
(610) 383-2000
Incorporated in Delaware
I.R.S. Employer Identification Number 23-2451900
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Exchange on Which Registered
Common Stock, $.01 Par Value New York Stock Exchange
7.625% Notes Due 2004 Not Listed
6.5% Medium-Term Notes, Series A, Due 2006 Not Listed
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. / /
Based on the closing price of March 7, 1997, the aggregate market value of
common stock held by nonaffiliates of the registrant was $177.4 million.
The number of common shares outstanding of the registrant was 14,805,589 as
of March 7, 1997.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Stockholder Meeting on April 30, 1997 Part III
<PAGE>
PART I
ITEM 1. BUSINESS.
General
Lukens Inc. is a holding company incorporated in Delaware. Subsidiaries of
Lukens Inc. manufacture carbon, alloy and clad steel plates, and stainless steel
sheet, strip, plate, hot band and slabs. In 1992, Lukens expanded into
stainless steel product lines with the acquisition of Washington Steel
Corporation for $273.7 million. Production facilities and markets are located
primarily in the United States.
Effective in 1997, the Washington Steel Corporation was merged with the Lukens
Steel Company, a wholly-owned subsidiary. The following disclosures reflect the
subsidiary structure as it existed during 1996.
Business Groups
With the continued integration of the company's facilities, effective in 1996
business group results are reported on a product line basis. The new groups are
the Carbon & Alloy Group and the Stainless Group. Prior year results have been
restated to conform with these business groups. Financial information for these
business groups is incorporated herein by reference to Note 2 to the financial
statements included in Part II, Item 8 of this Form 10-K. The chart below
outlines the business group composition of consolidated net sales for each of
the last three years.
Composition of Consolidated Net Sales by Business Group
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Carbon & Alloy % 49.6 41.9 48.9
Stainless 50.4 58.1 51.1
----- ----- -----
Total % 100.0 100.0 100.0
===== ===== =====
</TABLE>
<PAGE>
Carbon & Alloy Group
The Carbon & Alloy Group specializes in the production of carbon, alloy and clad
steel plate. Lukens Steel Company is the largest subsidiary in the group,
representing virtually all of the group's sales in 1996. It ranks as one of the
largest domestic plate steel producers and is the largest domestic producer of
heavy-gauge, heat treated alloy plate steels. There are several domestic and
foreign competitors. Major competitors are U.S. Steel Group, a subsidiary of the
USX Corporation, and Bethlehem Steel Corporation.
Lukens Steel's competitive position is enhanced by a concentration on plate with
a product line that includes a wide range of sizes and grades. In addition to
price and quality, customer satisfaction, measured by factors like shipped-on-
time performance and production lead times, has become increasingly important in
the competitive environment. Price competition has been and is expected to
remain intense as new capacity enters the market. In the long term, the
recently commissioned Steckel Mill Advanced Rolling Technology (SMART(R))
system should enable the group to produce high quality, wide, light-gauge plate
at competitive costs. The system will also produce new products that enable the
company to enter markets previously beyond its capabilities.
Products are sold primarily by an in-house sales force. Steel service centers
are the largest market for the group, accounting for approximately 38 percent of
annual sales in the last three years. The Carbon & Alloy Group supplies a wide
range of markets in the capital goods sector of the economy, including markets
for:
. Machinery and Industrial Equipment
. Infrastructure
. Environmental and Energy
. Transportation.
Some sales involve government contracts which may be subject to termination or
renegotiation. Terminations for convenience of the government generally provide
for payments to a contractor for its costs and a portion of its profit. Lukens
does not expect any material portion of its business to be terminated or
renegotiated.
Raw materials used in the production of carbon and alloy steel plate include
carbon scrap, alloy scrap and alloy additives. Generally, these materials are
purchased in the open market and are available from several sources. Prices and
availability are affected by the operating level of the domestic steel industry,
the quantity of scrap exported, currency exchange rates, and world political and
economic conditions. Scrap remains readily available, but scrap prices remained
at relatively high levels.
Principal energy sources used in production include electricity and natural gas.
Limited propane gas back-up systems are available at manufacturing facilities in
the event of natural gas supply
<PAGE>
restrictions. Forward exchange or hedge contracts for the purchase of natural
gas are used to manage the group's exposure to price volatility.
Stainless Group
Washington Steel Corporation is the largest subsidiary in the group,
representing 67 percent of the group's sales in 1996. This subsidiary
specializes in manufacturing and marketing stainless steel sheet, strip, plate,
hot band and slabs. Primary competitors include Allegheny-Teledyne
Incorporated, J&L Specialty Steel, Inc., North American Stainless Corporation
and Avesta Sheffield Pipe Inc. Washington Steel's competitive position is built
on the ability to serve niche markets by providing a wide range of quality
products.
Similar to the competitive environment in the Carbon & Alloy Group, customer
satisfaction, measured by factors like shipped-on-time performance and
production lead times, has become increasingly important. Price and quality
remain significant factors in the competitive environment. Stainless products
produced on the SMART system and finished on the group's recently installed wide
anneal and pickle line are anticipated to create quality, size and cost
competitive advantages in the long term. Marketing efforts for stainless hot
rolled products will be a key factor for 1997.
As evidenced by the Stainless Group results in 1996, vulnerability to stainless
steel imports can have a devastating impact. The dramatic rise in low-priced
stainless steel imports depressed base selling prices across all product lines.
It will be difficult for prices to rebound significantly from 1996 and the
introduction of new production capacity by competitors will continue to exert
pressure on selling prices over the next two or three years. Weak results are
expected to continue in 1997 if there is no improvement in the current market
conditions.
Washington Specialty Metals Corporation is a service and distribution center
that specializes in stainless steel. There are numerous competitors on both a
national and a regional scale. Washington Specialty Metals is a leading
distributor of flat-rolled stainless steel.
Products are sold primarily by the group's own sales organizations. Service
centers are the largest market for the group, accounting for approximately 37
percent of annual sales in the last three years. The Stainless Group ultimately
supplies diverse markets, including:
. Process Industries
. Food Service Equipment
. Architecture and Construction
. International
. Consumer Durables.
Raw materials used in production include stainless scrap, chrome, nickel and
molybdenum. Generally, these materials are purchased in the open market and are
available from several sources.
<PAGE>
Prices and availability are affected by the operating level of the worldwide
stainless steel industry, the quantity of scrap exported, currency exchange
rates, and world political and economic conditions. Nickel costs remain highly
volatile. Forward exchange or hedge contracts for nickel are used to manage the
group's exposure to market price volatility. Principal energy sources used in
production include electricity and natural gas.
Sales Order Backlog
(Dollars in thousands)
Listed below is the backlog at the end of 1996 and 1995. The backlog at year-end
1996 is anticipated to be shipped in 1997.
<TABLE>
<CAPTION>
12/28/96 12/30/95
-------- --------
<S> <C> <C>
Carbon & Alloy $ 68,134 90,416
Stainless 59,396 44,868
-------- -------
Total $127,530 135,284
======== =======
</TABLE>
Environment
Lukens is subject to Federal, state, and local environmental laws and
regulations. An environmental committee meets quarterly to review environmental
and remediation issues. Also, outside consultants are used on certain technical
issues. The trend for tighter environmental standards is expected to result in
higher waste disposal and monitoring costs, and additional capital expenditures
in the long term.
In 1996, capital expenditures for environmental compliance projects were $4.7
million, including expanded pollution control equipment at the melting facility
of Washington Steel Corporation. In 1997 and 1998, capital expenditures are
anticipated to be approximately $5 million and $4.6 million, respectively.
Lukens has been designated a potentially responsible party under Superfund law
at certain waste disposal sites and continually monitors a range of other
environmental issues. Superfund designations are made regardless of the extent
of the company's direct or indirect involvement. These claims are in various
stages of administrative or judicial proceedings and include demands for
recovery of incurred costs and for future investigation or remedial actions. The
company accrues costs associated with environmental matters when they become
probable and can be reasonably estimated. In assessing environmental liability,
the company considers the extent and type of hazardous substances at a site, the
range of technologies that can be used for remediation, evolving laws and
regulations, the allocation of costs among potentially responsible parties, and
the number and financial strength of those parties.
<PAGE>
During the fourth quarter of 1996, $9.4 million of expenses for environmental
remediation were recognized. The provision represented our best estimate of
costs for a Superfund site and other waste disposal sites.
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $16.8 million at year-end 1996
and $5.4 million at year-end 1995. Due to their uncertain nature, amounts
accrued could differ, perhaps significantly, from the actual costs that will be
incurred. No potential insurance recoveries were taken into account in
determining the company's cost estimates or reserves. Management does not
anticipate that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
Employees
The average number of employees during 1996 was 3,450, down from the 1995
average of 3,660. The decrease primarily reflected a work force reduction in the
second quarter of 1996 that eliminated approximately 150 salaried positions. A
new labor contract was ratified for the bargaining unit employees of a Carbon &
Alloy Group facility during the first quarter of 1996. The contract provided
for improvements in compensation and benefits, and terminates on January 31,
2000. Labor contracts for the Pennsylvania and Ohio manufacturing facilities of
the Stainless Group expire in 1999 and 2000.
ITEM 2. PROPERTIES.
Capital Expenditure Program
Capital expenditures in 1996 of $57.1 million were part of a program aimed at
promoting synergy between the Carbon & Alloy Group and the Stainless Group, and
expanding product lines to take advantage of anticipated long-term growth in
stainless steel markets.
The centerpiece of the program was the installation of the SMART system at the
facility in Conshohocken, Pennsylvania. The new system utilizes Steckel rolling
technology and processes products for our carbon, alloy and stainless product
lines. By year-end 1996, more than 20 grades of SMART carbon, alloy and
stainless plate were released for order-entry, in sizes that represent the core
of the wide, light-gauge product mix. SMART coil production has exceeded 2,500
tons per week.
A key component for the stainless steel business strategy was the installation
of the wide anneal and pickle line at the Massillon, Ohio, facility. The
installation of the line was completed during the fourth quarter of 1996 and
commissioning is under way.
<PAGE>
Carbon & Alloy Group
Raw steel is produced by an electric arc furnace at the Coatesville,
Pennsylvania, plant. Approximately 65 percent of 1996 production at this
facility was continuously cast into slabs, with the balance used for ingots. In
1995, stainless melting was initiated at the Coatesville plant. Hot rolling,
finishing and fabrication facilities are located in Coatesville and
Conshohocken, Pennsylvania. A relatively small fabrication facility is located
in Newton, North Carolina. Although to a lesser extent in 1996, capacity was
limited due to production disruptions associated with the start-up of capital
expenditure projects. In 1997, steel slabs will continue to be purchased, on a
limited basis, to supplement melting capacity. Capacity of other facilities is
considered adequate to support projected sales.
Stainless Group
Washington Steel Corporation has melting, continuous casting and hot rolling
facilities in Houston, Pennsylvania. Both the Washington, Pennsylvania, and
Massillon, Ohio, facilities have cold rolling and finishing facilities.
Utilization of these facilities averaged between 70 percent and 80 percent in
1996. Capacity of facilities is considered adequate to support projected sales.
Washington Specialty Metals Corporation has fabrication and distribution
facilities in Wheeling and Carol Stream, Illinois, and Lawrenceville, Georgia.
Additional distribution centers are listed below.
. Carrollton, Texas . Youngsville, North Carolina
. Tampa, Florida . Brampton, Ontario, Canada
. Vaudreuil, Quebec, Canada
ITEM 3. LEGAL PROCEEDINGS.
Since 1992, approximately 394 current and former employees have filed workers'
compensation hearing loss claims before the Pennsylvania Workers' Compensation
Board against Lukens Steel Company, a wholly-owned subsidiary. Reserves totaling
approximately $6 million were established to cover potential awards and defense
costs resulting from these claims. As of year-end 1996, an aggregate of 374
workers' compensation claimants had released their claims or received negotiated
payments which were, in the aggregate, within the amount of the established
reserves.
Since 1994, approximately 29 workers' compensation claims alleging hearing loss
have been filed by current and former employees before the Pennsylvania Workers'
Compensation Board against Washington Steel Corporation, a wholly-owned
subsidiary. Reserves totaling approximately $1 million were established to
cover potential awards and defense costs resulting from these claims.
In the opinion of management, remaining reserves are adequate to cover potential
awards and defense costs resulting from these claims.
<PAGE>
Lukens is involved in litigation and administrative proceedings which seek the
recovery of response costs with respect to certain waste disposal sites and is a
potentially responsible party under Superfund law at some of these sites.
Lukens' potential exposure in these actions will vary according to the amount of
responsibility attributed to Lukens, the allocation of responsibility among, and
financial viability of, other responsible parties, and the method and duration
of remedial action. Management does not anticipate that its long-term financial
position will be materially affected by additional environmental remediation
costs, although quarterly or annual operating results could be materially
affected by future developments.
The company is party to various claims, disputes, legal actions and other
proceedings involving contracts, equal employment opportunity, occupational
safety and various other matters. In the opinion of management, the outcome of
these matters should not have a material adverse effect on the consolidated
financial condition or results of operations of the company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were voted upon during the fourth quarter of 1996.
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
The following executive officers were elected by the Board of Directors until
their respective successors are elected:
<TABLE>
<CAPTION>
Executive Officer
Executive Officer/Title Age Since
- ----------------------- --- -----------------
<S> <C> <C>
R. W. Van Sant 58 October 1991
Chairman and Chief Executive Officer
John H. Bucher 57 April 1993
Vice President-Technology
P. Blaine Clemens 59 January 1997
Vice President and Controller
C. B. Houghton, Jr. 56 November 1994
Vice President-Business Development
T. Grant John 58 February 1993
Senior Vice President-Commercial
Richard D. Luzzi 45 February 1993
Vice President-Human Resources
James J. Norton 40 April 1992
Senior Vice President-President and
Chief Operating Officer-Washington
Specialty Metals
Frederick J. Smith 53 April 1993
Senior Vice President-Operations
William D. Sprague 55 October 1988
Vice President, General Counsel
and Secretary
John C. van Roden, Jr. 48 February 1987
Senior Vice President and
Chief Financial Officer
</TABLE>
<PAGE>
Listed below are executive officers that have been employed by Lukens in an
executive or managerial capacity for less than five years.
T. Grant John was previously with the Axel Johnson Group, a privately-owned
Swedish company with extensive holdings of stainless steel businesses.
During his 14 years with Axel Johnson, Mr. John held operating and
management positions in the corporation's United States operations. In
1985, Mr. John was appointed a corporate vice president of Axel Johnson,
Inc.
Richard D. Luzzi joined Rockwell International Corporation in 1980 and
became vice president-human resources at Rockwell Graphic Systems, Inc. in
1988. In 1991, he assumed the additional responsibility of vice president-
international human resources for Rockwell International.
James J. Norton, prior to the acquisition of Washington Steel Corporation
by Lukens in 1992, was president of the service center group. Previously,
he was the chief financial officer of Mercury Stainless Corporation,
including Washington Steel, from 1986 to 1991.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information contained in the section entitled "Dividends" in Part II, Item 7
of this Form 10-K and the section entitled "Quarterly Financial Data" in Part
II, Item 8 of this Form 10-K is incorporated herein by reference in response to
this item.
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.
<PAGE>
SELECTED FINANCIAL HIGHLIGHTS FOR ELEVEN YEARS
<TABLE>
<CAPTION>
1996/a/ 1995/a/ 1994/a/ 1993/a/
- ----------------------------------------------------------------------------- -------------- --------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 970,320 1,049,158 947,013 862,072
-------------------------------------------------------------------------- -------------- --------------- ------------------
Operating earnings (loss) (26,053) 67,980 49,570 36,602
Net non-operating (expense) income (16,735) (13,471) (13,213) (16,319)
Income tax expense (benefit) (14,377) 20,495 14,179 7,161
-------------------------------------------------------------------------- -------------- --------------- -----------------
Earnings (loss) from continuing operations (28,411) 34,014 22,178 13,122
Discontinued operations, net of tax -- -- -- 2,780
-------------------------------------------------------------------------- -------------- --------------- -----------------
Net earnings (loss) before cumulative effect of
accounting changes (28,411) 34,014 22,178 15,902
Per common share-- primary
Continuing operations (2.06) 2.16 1.37 .76
Discontinued operations -- -- -- .19
--------------------------------------------------------------------- -------------- --------------- -----------------
Net earnings (loss) (2.06) 2.16 1.37 .95
Percent of stockholders' investment-- start of year % (9.5) 12.3 8.3 4.8
Shares and equivalents outstanding --
weighted average 14,784 14,825 14,743 14,781
----------------------------------------------------------------------- -------------- --------------- -----------------
Cash dividends-- common 14,781 14,696 14,583 14,508
Per share 1.00 1.00 1.00 1.00
----------------------------------------------------------------------- -------------- --------------- -----------------
Cash flow from operations 43,667 85,491 79,180 72,290
Depreciation and amortization 48,949 41,304 43,962 45,488
Capital expenditures 57,092 104,120 120,342 67,424
Average number of employees 3,450 3,660 4,060 4,769
- ------------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
Inventories $ 148,925 163,125 134,928 160,060
Current assets 266,656 314,891 281,036 307,739
Working capital 99,158 106,221 106,480 146,034
Current ratio 1.6 1.5 1.6 1.9
Plant and equipment, net of depreciation 533,326 529,432 478,129 431,853
Total assets 888,751 919,663 826,434 817,178
-------------------------------------------------------------------------- -------------- --------------- -----------------
Long-term debt 248,695 217,339 201,351 220,768
Total debt 253,573 228,189 208,485 226,589
-------------------------------------------------------------------------- -------------- ---------------- -----------------
Stockholders' investment 244,642 298,719 277,057 266,754
Per common share 16.53 20.27 18.91 18.36
Common shares outstanding 14,802 14,736 14,652 14,529
Stockholders of record 4,900 5,700 6,000 5,600
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
a. Includes results from the Washington Steel Corporation acquisition on April
24, 1992.
Dollars and shares in thousands except per share amounts
<PAGE>
<TABLE>
<CAPTION>
1992/a/ 1991 1990 1989
- -------------------------------------------------------------------------- --------------- ---------------- ------------------
FOR THE YEAR
Net sales 695,772 423,154 488,217 476,838
----------------------------------------------------------------------- --------------- ---------------- ------------------
Operating earnings (loss) 51,820 22,006 59,376 60,025
Net non-operating (expense) income (12,737) 225 (686) (2,758)
Income tax expense (benefit) 15,289 8,432 21,829 21,275
----------------------------------------------------------------------- --------------- ---------------- ------------------
Earnings (loss) from continuing operations 23,794 13,799 36,861 35,992
Discontinued operations, net of tax 9,261 9,197 7,291 5,502
----------------------------------------------------------------------- --------------- ---------------- ------------------
Net earnings (loss) before cumulative effect of
accounting changes 33,055 22,996 44,152 41,494
Per common share-- primary
Continuing operations 1.63 .96 2.80 2.72
Discontinued operations .68 .72 .58 .43
------------------------------------------------------------------ --------------- ---------------- ------------------
Net earnings (loss) 2.31 1.68 3.38 3.15
Percent of stockholders' investment-- start of year 13.3 9.7 21.8 22.9
Shares and equivalents outstanding --
weighted average 13,603 12,699 12,572 12,732
----------------------------------------------------------------------- --------------- ---------------- ------------------
Cash dividends-- common 13,374 12,397 11,796 9,245
Per share 1.00 1.00 .94 .74
----------------------------------------------------------------------- --------------- ---------------- ------------------
Cash flow from operations 59,184 66,344 92,112 38,456
Depreciation and amortization 39,232 25,833 25,789 23,709
Capital expenditures 36,002 34,696 35,018 25,471
Average number of employees 4,240 3,884 3,960 3,878
------------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
Inventories 150,187 74,600 71,854 95,685
Current assets 294,388 203,930 183,975 169,971
Working capital 142,466 104,752 96,442 87,629
Current ratio 1.9 2.1 2.1 2.1
Plant and equipment, net of depreciation 410,206 210,578 201,720 185,537
Total assets 760,045 432,360 411,919 376,660
----------------------------------------------------------------------- --------------- ---------------- ------------------
Long-term debt 218,903 46,637 54,553 57,359
Total debt 223,275 53,262 59,034 62,683
----------------------------------------------------------------------- --------------- ---------------- ------------------
Stockholders' investment 329,073 248,323 236,239 202,893
Per common share 22.77 19.69 18.90 16.40
Common shares outstanding 14,455 12,610 12,497 12,371
Stockholders of record 4,700 4,400 3,900 3,400
------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1988 1987 1986
- ------------------------------------------------------------------------------ ------------------ -------------------
<S> <C> <C> <C>
FOR THE YEAR
Net sales 450,779 363,614 276,027
--------------------------------------------------------------------------- ------------------ -------------------
Operating earnings (loss) 51,732 37,358 14,190
Net non-operating (expense) income (4,739) (5,725) (5,772)
Income tax expense (benefit) 17,205 14,188 4,772
--------------------------------------------------------------------------- ------------------ -------------------
Earnings (loss) from continuing operations 29,788 17,445 3,646
Discontinued operations, net of tax 3,600 4,217 5,128
--------------------------------------------------------------------------- ------------------ -------------------
Net earnings (loss) before cumulative effect of
accounting changes 33,388 21,662 8,774
Per common share-- primary
Continuing operations 2.33 1.38 .32
Discontinued operations .28 .34 .45
--------------------------------------------------------------------------- ------------------ -------------------
Net earnings (loss) 2.61 1.72 .77
Percent of stockholders' investment-- start of year 22.1 16.7 7.6
Shares and equivalents outstanding --
weighted average 12,812 12,585 11,462
--------------------------------------------------------------------------- ------------------ -------------------
Cash dividends-- common 5,925 3,802 2,429
Per share .46 .30 .21
--------------------------------------------------------------------------- ------------------ -------------------
Cash flow from operations 49,054 23,555 45,055
Depreciation and amortization 22,623 21,626 21,805
Capital expenditures 35,153 25,762 9,831
Average number of employees 3,838 3,552 3,352
--------------------------------------------------------------------------- ------------------ -------------------
AT YEAR-END
Inventories 90,337 79,954 61,520
Current assets 162,608 150,533 121,765
Working capital 68,936 65,252 42,483
Current ratio 1.7 1.8 1.5
Plant and equipment, net of depreciation 181,503 163,158 176,482
Total assets 353,054 326,251 312,469
--------------------------------------------------------------------------- ------------------ -------------------
Long-term debt 47,075 55,661 65,671
Total debt 51,044 61,304 73,730
--------------------------------------------------------------------------- ------------------ -------------------
Stockholders' investment 181,332 151,222 129,428
Per common share 14.06 11.90 10.49
Common shares outstanding 12,894 12,704 12,344
Stockholders of record 3,200 2,700 3,100
--------------------------------------------------------------------------- ------------------ -------------------
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
<PAGE>
Management's Discussion and Analysis
Results of Operations and Financial Condition
The following discussion focuses on the results of operations and on the
financial condition of Lukens Inc. In addition to the consolidated results
analysis, the results of Lukens' two business groups are discussed. With the
continued integration of the company's facilities, effective in 1996 business
group results are reported on a product line basis. The new groups are the
Carbon & Alloy Group and the Stainless Group. Prior year results have been
restated to conform with these business groups.
This section should be read in conjunction with the consolidated financial
statements and notes.
Consolidated
Results of Operations
NET SALES.
A graph of net sales appears in this section.
1994 -- $947,013
1995 -- $1,049,158
1996 -- $970,320
Sales were down 8 percent in 1996 with weak North American stainless steel
market conditions contributing to lower Stainless Group sales. The decrease was
partially offset by volume improvements in the Carbon & Alloy Group.
1995 sales were up 11 percent compared to 1994. The increase resulted from
the Stainless Group, which benefited from higher selling prices. The Carbon &
Alloy Group also benefited from higher selling prices, but shipments were
limited by production disruptions from the start-up of capital expenditure
projects.
OPERATING
EARNINGS (LOSS).
A graph of operating earnings (loss) appears in this section.
1994 -- $49,570
1995 -- $67,980
1996 -- $(26,053)
The 1996 loss represented a dramatic reversal from strong 1995 earnings.
During the year, Lukens recorded unusual charges totaling $26,115. A second
quarter provision of $10,782 was recognized for a work force reduction. In the
fourth quarter, the company recorded a provision of $9,400 for environmental
remediation and $5,933 for fixed asset write-downs. Excluding the unusual items
for comparison purposes, operating earnings were $62 in 1996. The Stainless
Group caused the decrease due to a highly competitive stainless steel market,
which put substantial pressure on base selling prices. The Carbon & Alloy Group
benefited from higher shipments. Results were limited by higher utility costs
caused by severe winter weather and by signing bonuses associated with a new
labor contract.
<TABLE>
<CAPTION>
SUMMARY OF RESULTS 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 970,320 1,049,158 947,013
Operating earnings (loss) $ ( 26,053) 67,980 49,570
Interest expense $ 16,735 13,471 13,213
Income tax expense (benefit) $ ( 14,377) 20,495 14,179
Effective income tax rate % ( 33.6) 37.6 39.0
Net earnings (loss) $ ( 28,411) 34,014 22,178
- -------------------------------------------------------------------
</TABLE>
Dollars in thousands except per share amounts
<PAGE>
Management's Discussion and Analysis
Operating earnings in 1995 compared to 1994 were up 37 percent. The increase
primarily reflected the favorable impact of higher selling prices and
productivity gains in the Stainless Group. Earnings in the Carbon & Alloy Group
were limited by production disruptions and expenses associated with the start-up
of capital expenditure projects.
INTEREST EXPENSE.
A graph of interest expense appears in this section.
1994 -- $13,213
1995 -- $13,471
1996 -- $16,735
Interest expense in 1996 was up 24 percent. Higher debt levels in 1996 were
the primary reason for the increase.
Interest expense in 1995 was up 2 percent compared to 1994 with most of the
increase attributable to higher debt levels and higher interest rates. The
increase was partially offset by higher amounts of capitalized interest in 1995.
INCOME TAX EXPENSE (BENEFIT).
A graph of the effective income tax rate appears in this section.
1994 -- 39.0%
1995 -- 37.6%
1996 -- (33.6%)
The effective tax rate applied against 1996 losses was 33.6 percent. The
benefit primarily resulted from a build in deferred tax assets that reflected
the availability of tax credit carryforwards. In 1995, the effective rate was
37.6 percent and in 1994 it was 39.0 percent. Included in the 1994 rate was .7
percent from the revaluation of net deferred tax assets following changes to
Pennsylvania corporate income tax rates and net operating loss deduction rules.
Deferred tax assets recognized were based on the combination of the
historical earnings trend, future reversals of existing taxable temporary
differences, carryback availability, tax planning strategies and future taxable
income.
NET EARNINGS (LOSS).
A graph of net earnings (loss) appears in this section.
1994 -- $22,178
1995 -- $34,014
1996 -- $(28,411)
On an after-tax basis, the unusual provisions recorded in 1996 reduced
results by $16,673. Excluding the unusual items for comparison purposes, the net
loss was $11,738. In 1995, higher operating earnings translated to a 53 percent
increase in net earnings compared to 1994.
Business Groups
CARBON & ALLOY.
Business group graphs appear in this section.
Carbon & Alloy net sales:
1994 -- $463,249
1995 -- $439,330
1996 -- $481,237
Carbon & Alloy operating earnings (loss):
1994 -- $24,584
1995 -- $11,946
1996 -- $(2,554)
Net sales were up 10 percent in 1996. The increase was largely attributable
to an 11 percent increase in shipments, particularly in carbon products.
Shipments in 1996 were 652,600 tons compared to 589,100 tons in 1995.
The group recorded an operating loss in 1996 due to unusual charges of
$15,578. A work force reduction charge reduced results by $6,178 and an
environmental remediation provision was $9,400. Before the provisions, operating
earnings of $13,024 were up 9 percent from 1995. Also impacting 1996 results was
a $3,756 charge for signing bonuses associated with the new labor agreement at
the Coatesville, Pennsylvania, facility, higher utility costs caused by severe
winter weather and strike preparation costs. Although to a lesser extent, 1996
results continued to be impacted by production disruptions and expenses
associated with
Dollars in thousands except per share amounts
<PAGE>
the commissioning of the Steckel Mill Advanced Rolling Technology (SMART/(R)/)
system.
The 5 percent sales decrease in 1995 compared to 1994 reflected the
combination of lower shipments, partially offset by higher selling prices.
Production disruptions from the start-up of capital expenditure projects were
evident by the shipment decline, particularly in carbon products. Shipments in
1995 were down 17 percent compared to 708,600 tons in 1994.
Operating earnings decreased 51 percent in 1995 compared to 1994. Earnings
were limited by start-up expenses and the production disruptions previously
discussed. Higher scrap prices also impacted results. Included in 1994 results
were the impact of production disruptions and maintenance costs associated with
severe weather conditions that resulted in a loss for the first quarter of 1994.
STAINLESS.
Business group graphs appear in this section.
Stainless net sales:
1994 -- $483,764
1995 -- $609,828
1996 -- $489,083
Stainless operating earnings (loss):
1994 -- $41,640
1995 -- $75,148
1996 -- $(7,058)
Weak stainless steel market conditions led to a 20 percent decrease in sales
and an operating loss in 1996. The sales decline reflected customer inventory
corrections during the first half of the year that reduced cold rolled
shipments. For the balance of 1996, the dramatic rise in low-priced stainless
steel imports depressed base selling prices across all product lines. A lower-
value shipment mix also contributed to the decrease. Shipments for 1996 were
262,100 tons, down slightly from 1995 shipments of 267,200 tons. Excluding
lower-value conversion tonnage, shipments were down 12 percent from last year,
primarily due to decreases in hot rolled and hot band stainless product
shipments.
Included in the 1996 operating loss were unusual charges totaling $9,628. The
charges consisted of $3,695 for a work force reduction and $5,933 to write down
idle assets and other equipment replaced as a result of capital improvements.
Excluding the unusual charges for comparison purposes, operating earnings of
$2,570 were down 97 percent from 1995. The decline primarily reflected a
significant deterioration in stainless steel market conditions as previously
discussed. In addition, earnings from the service center operations did not
match their excellent 1995 results.
Higher selling prices in 1995 led to a 26 percent increase in sales compared
to 1994. The increase was limited by customer inventory corrections during the
second half of 1995, which reduced shipments of cold rolled products. Shipments
for 1995 were 3 percent higher than 1994 shipments of 259,500 tons. The sales
improvement, coupled with productivity gains and strong results from the service
center operations, translated to an 80 percent earnings improvement from 1994.
Higher raw material costs partially offset the earnings improvement.
Business Outlook
A return to profitability in 1997 is dependent on market conditions,
especially selling prices in the Stainless Group. The company will continue to
focus on cost reduction initiatives and increased utilization of key facilities
from the capital expenditure program.
As evidenced by the Stainless Group results in 1996, vulnerability to
stainless steel imports can have a devastating impact. It is not expected that
prices will rebound significantly from 1996 and the introduction of new
production capacity by competitors will continue to exert pressure on selling
prices over the next two or three years. Weak results are expected to continue
if there is no improvement in the current market conditions.
Dollars in thousands except per share amounts
<PAGE>
Management's Discussion and Analysis
The Carbon & Alloy Group should benefit from cost reduction initiatives and
increased utilization of the SMART system. Cost reduction initiatives include
benefits from a work force reduction and productivity improvements. Competition
is also expected to intensify as increased carbon plate capacity could soften
prices in 1997.
From the SMART system located in Conshohocken, Pennsylvania, more than 20
grades of SMART carbon, alloy and stainless plate have been released for order-
entry, in sizes that represent the core of the wide, light-gauge product mix.
SMART coil production has exceeded 2,500 tons per week. The installation of the
wide anneal and pickle line at the Massillon, Ohio, facility was completed
during the fourth quarter and commissioning is under way. The challenge in 1997
is to increase utilization and integration of these new facilities. In
particular, marketing efforts for stainless hot rolled products will be a key
factor for the year.
Financial Condition
CAPITAL STRUCTURE.
A graph of current assets and working capital appears in this section.
Current assets:
1994 -- $281,036
1995 -- $314,891
1996 -- $266,656
Working capital:
1994 -- $106,480
1995 -- $106,221
1996 -- $99,158
At the end of 1996, cash and cash equivalents totaled $10,282, a decrease of
$774 from the end of 1995. Working capital of $99,158 was down $7,063 from year-
end 1995. Lower accounts payable was offset by a reduction in accounts
receivable and inventory in 1996. The current ratio was 1.6 compared to 1.5 at
year-end 1995.
Included in other liabilities at year-end 1996 was a $9,400 environmental
remediation provision recorded during the fourth quarter. The provision
represented the company's best estimate of costs for a Superfund site and other
waste disposal sites, as discussed in Note 3.
Debt at the end of 1996 was $253,573, an increase of $25,384, or 11 percent
from year-end 1995. The increase reflected $75,000 of Medium-Term Notes, Series
A, issued in January 1996, under a $100,000 shelf registration completed in June
1994. The notes are due in 2006 and are rated Baa2 by Moody's and BBB+ by
Standard and Poor's. Interest is paid semi-annually and the notes carry a coupon
rate of 6.5 percent with an effective rate of 6.585 percent. Net proceeds were
primarily used to repay the outstanding balance of the revolving credit
agreement.
The remaining $25,000 of notes available under the shelf registration are
structured to provide Lukens with flexibility in maturities, from nine months to
30 years, and flexibility in interest rate structures.
The $150,000 of notes due in 2004 were rated the same as the notes due in
2006. Included in year-end debt was $15,374 of ESOP debt, which is guaranteed by
Lukens. The ratio of long-term debt to total capital was 51.7 percent at the end
of 1996 and 42.1 percent at year-end 1995. The 1996 ratio increased by 2.6
percent from the reclassification of preferred stock and deferred ESOP
compensation as redeemable stock, discussed below. The term of the company's
revolving credit agreement was extended to January 15, 2002, in the fourth
quarter of 1996.
Lukens Series B Convertible Preferred Stock is redeemable in common stock, cash
or a combination at the option of Lukens when the price of Lukens common stock
is $20 per share or greater. If the price is below $20 per share, participants
in a company-sponsored 401(k) employee
Dollars in thousands except per share amounts
<PAGE>
savings plan have the option to redeem preferred stock in the combination
above. At year-end 1996, preferred stock and the related ESOP deferred
compensation were classified as redeemable stock because the price of Lukens
common stock was below $20 per share on December 28, 1996, the fiscal year-end.
The reclassification from stockholders' investment reflected the ability of
401(k) participants to elect a cash payout option at redemption. The
classification was not made in prior years because the company had the ability
and intention to redeem preferred stock with Lukens common stock.
Lukens enters into forward exchange contracts (derivatives) with the
objective to manage or hedge exposure to market price changes of certain
commodities used in manufacturing. The company does not speculate or trade in
these agreements for profit. These contracts generally provide for the exchange
of a market price for a fixed price based on a notional quantity. Contracts are
executed under the guidelines of a corporate policy. The policy specifies
members of management with the authority to execute agreements and establishes
limits on the amount of contracts outstanding. As of year-end 1996, Lukens was
party to several agreements maturing in 1997, which are discussed in Note 8.
At the Annual Meeting of Stockholders on April 24, 1996, stockholders
approved a 900,000 increase in the number of shares of common stock available
for issuance under the 1985 Stock Option and Appreciation Plan, increasing the
total to 2,737,500.
LIQUIDITY -- SHORT TERM.
Graphs of cash flow from operations and capital expenditures appear in this
section.
Cash flow from operations:
1994 -- $79,180
1995 -- $85,491
1996 -- $43,667
Capital expenditures:
1994 -- $120,342
1995 -- $104,120
1996 -- $57,092
Cash flow from operating activity was $43,667 in 1996 compared to $85,491 in
1995. The decrease was primarily due to lower results in 1996. Although the
inventory reduction target was not fully realized in 1996, cash flow from
operations benefited from lower levels of inventory and accounts receivable.
Financing activity generated $12,436. Proceeds from the issuance of the notes
discussed in the Capital Structure section were offset by net repayments of
$45,230 and dividend payments of $17,137. Investing activity required $56,877,
primarily for capital expenditures of $57,092.
Improving cash flows from operating activity in 1997 are largely dependent on
the earnings factors identified in the Business Outlook section. Another factor
that will contribute to improved cash flows in 1997 is reduced capital
expenditures. Capital expenditures for 1997 are expected to decrease to
approximately $42,000. The combination of these cash flows and requirements
should result in a capital structure similar to year-end 1996. Based on 1996
year-end conditions, additional borrowings were limited to approximately $60,000
under the committed line of credit covenant.
Consolidated backlog at year-end 1996 was $127,500, down 6 percent from the
beginning of the year.
LIQUIDITY -- LONG TERM. In the long term, Lukens relies on the ability to
generate sufficient cash flows from operating activity to fund investing and
financing requirements and to maintain a target long-term debt-to-capital ratio
of 35 percent. Lukens has generated cash from operations totaling $208,338 over
the past three years. Primarily because of the capital expenditure program, the
target long-term debt-to-capital ratio has continued to be exceeded.
Dollars in thousands except per share amounts
<PAGE>
ENVIRONMENTAL COMPLIANCE. Capital expenditures for environmental compliance are
projected to be approximately $5,000 in 1997 and $4,600 in 1998. The trend for
tighter environmental standards is expected to result in higher waste disposal
and monitoring costs and additional capital expenditures in the long term.
Lukens has been designated a potentially responsible party under Superfund
law at certain waste disposal sites and continually monitors a range of other
environmental issues. As discussed in Note 3, a $9,400 environmental remediation
provision was recorded in 1996. The timing of the estimated payments will not be
determined until final resolution of the related administrative and judicial
proceedings. The company's exposure to remediation costs at these sites depends
on several factors discussed in Note 10.
Based on information currently available, management does not anticipate that
its financial position will be materially affected by additional environmental
remediation costs, although quarterly or annual operating results could be
materially affected by future developments.
DEBT FINANCING. Lukens' notes outstanding of $150,000 are due in 2004. The
Medium-Term Notes, Series A, outstanding of $75,000 are due in 2006. Supporting
both short- and long-term liquidity needs are agreements for a committed line of
credit and a shelf registration with $25,000 of notes available, discussed in
the Capital Structure section.
OTHER COMMITMENTS. A contract for the supply of oxygen and related products to a
Carbon & Alloy Group manufacturing facility runs until 2007 and includes
take-or-pay provisions totaling $26,630 over the remaining term.
INFLATION. On average, inflation rates for the domestic economy have been
relatively low over the past few years. Although long-term inflation rates are
difficult to predict, Lukens believes it has the flexibility in operations and
capital structure to maintain a competitive position.
DIVIDENDS.
A graph of net earnings (loss) per common share and dividends per common share
appears in this section.
Net earnings (loss) per common share:
1994 -- $1.37
1995 -- $2.16
1996 -- $(2.06)
Dividends per common share:
1994 -- $1.00
1995 -- $1.00
1996 -- $1.00
Lukens paid $1.00 per share in common stock dividends in 1996. A quarterly
common dividend of $.25 per share was paid on February 21, 1997. It is the
company's objective to pay common dividends approximating 35 percent of net
earnings over the long term. As of February 7, 1997, there were approximately
5,000 common stockholders of record.
The Series B Convertible Preferred Stock held by the ESOP carries a
cumulative annual dividend of $4.80 per share.
Lukens common stock is listed and traded on the New York Stock Exchange,
symbol LUC. Dividends and stock market price ranges for the last two years are
included in the table on page 35.
Dollars in thousands except per share amounts
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
<PAGE>
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF EARNINGS
for the 52 weeks ended December 28, 1996, and December 30, 1995, and the 53
weeks ended December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------------------------- --------- --------
<S> <C> <C> <C>
Net Sales $ 970,320 1,049,158 947,013
Operating Costs and Expenses (Notes 1,
4, 6, 8 and 10)
Cost of products sold 915,113 922,667 841,308
Selling and administrative expenses 55,145 58,511 56,135
Unusual items (Note 3)
Work force reduction provision 10,782 -- --
Environmental remediation provision 9,400 -- --
Fixed asset write-downs 5,933 -- --
-------------------------------------------------------- --------- --------
Total operating costs and expenses 996,373 981,178 897,443
Operating Earnings (Loss) ( 26,053) 67,980 49,570
Interest expense (Note 8) 16,735 13,471 13,213
--------------------------------------------------------- --------- --------
Earnings (Loss) Before Income Taxes ( 42,788) 54,509 36,357
Income tax expense (benefit) (Note 5) ( 14,377) 20,495 14,179
--------------------------------------------------------- --------- --------
Net Earnings (Loss) $( 28,411) 34,014 22,178
- --------------------------------------------------------------------------------
Dividend requirements for preferred
stock (Note 9) ( 1,994) ( 1,962) ( 2,025)
Net Earnings (Loss) Applicable to
Common Stock $( 30,405) 32,052 20,153
- --------------------------------------------------------------------------------
Earnings (Loss) Per Common Share (Note 1)
Primary $( 2.06) 2.16 1.37
Fully diluted $( 2.06) 2.05 1.32
Common Shares and Equivalents
Outstanding (Note 1)
Primary 14,784 14,825 14,743
Fully diluted 16,278 16,345 16,331
Cash Dividends on Common Stock -- Per
Share $ 1.00 1.00 1.00
- --------------------------------------------------------------------------------
</TABLE>
The notes on pages 25 through 34 are an integral part of these statements.
Dollars and shares in thousands except per share amounts
<PAGE>
CONSOLIDATED BALANCE SHEETS
as of December 28, 1996, and December 30, 1995
<TABLE>
<CAPTION>
ASSETS 1996 1995
- -------------------------------------------------------------------- --------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 1) $ 10,282 11,056
Receivables, less allowance of $7,750 in 1996 and
$6,632 in 1995 92,356 130,601
Inventories (Notes 1 and 7) 148,925 163,125
Deferred income taxes (Note 5) 13,129 8,442
Prepaid expenses and other 1,964 1,667
------------------------------------------------------------------- --------
Total current assets 266,656 314,891
Plant and Equipment (Notes 1, 3 and 10)
Land 11,880 11,697
Buildings 87,875 83,060
Machinery and equipment 842,334 761,605
Construction in progress 11,664 52,017
------------------------------------------------------------------- --------
953,753 908,379
Less accumulated depreciation 420,427 378,947
------------------------------------------------------------------- --------
Net plant and equipment 533,326 529,432
Intangible Assets, net of accumulated amortization
of $9,114 in 1996 and $7,076 in 1995 (Notes 1 and 4) 57,158 57,861
Deferred Income Taxes (Note 5) 29,937 16,301
Other Assets 1,674 1,178
- -------------------------------------------------------------------- --------
Total Assets $ 888,751 919,663
- -------------------------------------------------------------------- --------
LIABILITIES & STOCKHOLDERS' INVESTMENT
Current Liabilities
Accounts payable $ 92,252 121,923
Accrued employment costs (Notes 3, 4 and 6) 46,603 53,688
Other accrued expenses 23,765 22,209
Current maturities of long-term debt (Note 8) 4,878 10,850
------------------------------------------------------------------- --------
Total current liabilities 167,498 208,670
Long-Term Debt (Note 8) 248,695 217,339
Retirement Benefits (Notes 3 and 4)
Pensions 43,995 39,275
Medical and life insurance 148,479 146,401
Other Liabilities (Notes 3 and 10) 22,015 9,259
- -------------------------------------------------------------------- --------
Total liabilities 630,682 620,944
Commitments and Contingencies (Note 10)
Redeemable Stock (Note 9)
Series preferred stock 28,801 --
Deferred compensation -- ESOP ( 15,374) --
------------------------------------------------------------------- --------
Total redeemable stock 13,427 --
Stockholders' Investment
Series preferred stock (Note 9) -- 29,665
Common stock (Note 9) 158 158
Capital in excess of par value 86,002 85,204
Earnings invested 171,730 216,934
Foreign currency translation adjustments ( 1,332) (1,141)
Deferred compensation -- ESOP (Notes 6 and 9) -- (19,404)
Repurchased stock, at cost ( 11,916) (12,697)
------------------------------------------------------------------- --------
Total stockholders' investment 244,642 298,719
------------------------------------------------------------------- --------
Total Liabilities & Stockholders' Investment $ 888,751 919,663
- -------------------------------------------------------------------- --------
</TABLE>
The notes on pages 25 through 34 are an integral part of these statements.
Dollars in thousands
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
for the 52 weeks ended December 28, 1996, and December 30, 1995, and the 53
weeks ended December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
Shares Dollars Shares Dollars Shares Dollars
- -------------------------------------------------------------- ---------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Series Preferred Stock (Note 9)
(1,000,000 shares authorized)
Series B
Balance at beginning of year 494,413 $ 29,665 510,592 $ 30,635 541,123 $ 32,467
Conversion (14,395) (864) (16,179) (970) (30,531) (1,832)
Redeemable stock classification
(Note 9) (480,018) (28,801) -- -- -- --
------------------------------------------------------------ ---------- ------- -------- ------- --------
Balance at end of year -- -- 494,413 29,665 510,592 30,635
Common Stock (Note 9)
(40,000,000 shares authorized) 15,813,259 158 15,813,259 158 15,813,259 158
Capital in Excess of Par Value
Balance at beginning of year 85,204 84,088 82,625
Stock option activity (Note 6) 565 716 685
Conversion of Series B
preferred stock 233 400 778
------------------------------------------------------------- ---------- -------- --------
Balance at end of year 86,002 85,204 84,088
Earnings Invested
Balance at beginning of year 216,934 199,586 193,977
Net earnings (loss) (28,411) 34,014 22,178
Dividends
Preferred ($4.80 per share) (2,339) (2,405) (2,522)
Common ($1.00 per share) (14,781) (14,696) (14,583)
Tax benefit on ESOP preferred
stock dividends 327 435 536
----------------------------------------------------------- ---------- -------- --------
Balance at end of year 171,730 216,934 199,586
Foreign Currency Translation
Adjustments
Balance at beginning of year (1,141) (1,303) (1,641)
Effect of rate changes (191) 162 (665)
Sale of subsidiaries -- -- 1,003
------------------------------------------------------------- ---------- -------- --------
Balance at end of year (1,332) (1,141) (1,303)
Deferred Compensation -- ESOP
(Note 6)
Balance at beginning of year (19,404) (22,767) (26,209)
Allocations to employees 4,030 3,363 3,442
Redeemable stock classification
(Note 9) 15,374 -- --
------------------------------------------------------------- ---------- -------- --------
Balance at end of year -- (19,404) (22,767)
Repurchased Stock, at cost
Balance at beginning of year 1,077,305 (12,697) 1,161,460 (13,340) 1,284,273 (14,623)
Stock option activity (Note 6) (36,750) 433 (35,675) 74 (31,366) 233
Conversion of Series B
preferred stock (29,567) 348 (48,480) 569 (91,447) 1,050
------------------------------------------------------------- ---------- --------- --------- --------- ---------
Balance at end of year 1,010,988 (11,916) 1,077,305 (12,697) 1,161,460 (13,340)
Stockholders' Investment $ 244,642 $ 298,719 $ 277,057
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The notes on pages 25 through 34 are an integral part of these statements.
Dollars in thousands except per share amounts
<PAGE>
Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the 52 weeks ended December 28, 1996, and December 30, 1995, and the 53
weeks ended December 31, 1994
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------- --------- ---------
<S> <C> <C> <C>
Operating Activity
Net earnings (loss) $ (28,411) 34,014 22,178
Adjustments to Reconcile Net
Earnings (Loss)
to Cash Flow from Operating Activity
Depreciation and amortization 48,949 41,304 43,962
Income taxes deferred (18,323) 9,270 4,687
Provision for uncollectible
accounts 11,348 10,044 10,467
Retirement benefit funding less
than expense 12,078 4,859 14,755
Environmental remediation
provision 9,400 -- --
Fixed asset write-downs 5,933 -- --
Changes in working capital
affecting operations
Accounts receivable 26,897 (25,102) (34,699)
Inventories 14,200 (29,746) 6,813
Prepaid expenses and other (297) 144 2,469
Accounts payable (29,654) 36,585 17,722
Accrued expenses (11,901) 1,894 (7,023)
Other, net 3,448 2,225 (2,151)
------------------------------------------------------- --------- ---------
Cash flow from operating activity 43,667 85,491 79,180
Financing Activity
Long-term debt
Proceeds from issuance of notes 74,538 -- --
Other borrowed -- 70,350 15,100
Other repaid (45,230) (47,346) (29,826)
Dividends paid (17,137) (17,121) (17,140)
Proceeds from stock options
exercised 802 408 720
Other, net (537) (12) (251)
-------------------------------------------------------- --------- ---------
Net from (for) financing activity 12,436 6,279 (31,397)
Investing Activity
Capital expenditures (57,092) (104,120) (120,342)
Proceeds from sale of
assets/subsidiaries 466 17,106 70,433
Other, net (251) (3,506) 449
-------------------------------------------------------- --------- ---------
Net for investing activity (56,877) (90,520) (49,460)
Cash and Cash Equivalents
Increase (decrease) (774) 1,250 (1,677)
Start of year 11,056 9,806 11,483
- --------------------------------------------------------- --------- ---------
End of year $ 10,282 11,056 9,806
- -------------------------------------------------------------------------------
</TABLE>
The notes on pages 25 through 34 are an integral part of these statements.
Dollars in thousands
<PAGE>
Notes to Consolidated Financial Statements
1. Accounting Policies
Basis of Presentation. The consolidated financial statements include the
accounts of Lukens Inc. and all majority-owned subsidiaries. Our fiscal year is
the 52- or 53-week period that ends on the last Saturday of December. Certain
subsidiaries are consolidated on a calendar year basis. The preparation of
financial statements in conformity with generally accepted accounting principles
requires estimates and assumptions that affect the reported amounts and
contingency disclosures.
Cash and Cash Equivalents. Highly liquid investments with maturities of three
months or less when purchased are recognized as cash equivalents.
Inventories. Inventories are recorded at the lower of cost or market. Cost is
determined by the last-in, first-out (LIFO) method for most product and raw
material inventories. The service center operations of the Stainless Group
determine cost by the first-in, first-out (FIFO) method. Supplies are valued at
the lower of average cost or market. Additional disclosures are included in Note
7.
Plant and Equipment. Plant and equipment are stated at cost and are depreciated
using the straight-line method over the estimated useful life. The useful life
ranges from 30 to 40 years for buildings and from 10 to 18 years for most
production machinery and equipment. The cost of plant and equipment retired in
the normal course of business is generally charged against accumulated
depreciation. Gains and losses on other retirements are reflected in earnings.
Additional disclosures are included below in Accounting Changes -- Asset
Impairment and in Note 3.
Intangible Assets. Intangible assets consist primarily of goodwill resulting
from the Washington Steel Corporation acquisition in 1992. Goodwill from the
acquisition is amortized on a straight-line basis over 25 years. Also included
in intangible assets are pension related assets, discussed in Note 4. Additional
disclosures are included below in Accounting Changes --Asset Impairment.
Derivative Financial Instruments. Derivative financial instruments, such as
forward exchange contracts, are used to manage or hedge exposure to changes in
market conditions for certain raw material purchases. Gains or losses on these
contracts are recognized as a component of the related transaction over the life
of the contract. Additional disclosures are included in Note 8.
Environmental Remediation. Environmental liabilities recognized represent our
best estimate of remediation expenditures that are probable and that can be
reasonably estimated. Environmental costs are expensed unless they increase the
value of the related asset and/or prevent or mitigate future contamination. In
November 1996, the American Institute of Certified Public Accountants issued
guidance on accounting for environmental liabilities. The adoption of this
guidance in 1997 is not anticipated to have a material effect on the company's
consolidated financial condition or results of operations. Additional
disclosures are included in Notes 3 and 10.
Start-Up Costs. Costs incurred in the start-up of a facility, including
training and production testing, are expensed as incurred.
Earnings Per Share. Primary earnings per common share are calculated by
dividing net earnings applicable to common stock by the average number of common
shares outstanding and common stock equivalents. On a fully-diluted basis, both
net earnings and shares outstanding are adjusted to assume the conversion of
convertible preferred stock. Adjustments that would be antidilutive or reduce a
loss per share are not recognized.
Accounting Changes -- Asset Impairment. In 1996, Lukens adopted Statement of
Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement
required review and measurement methods to calculate impairment of long-lived
assets, including certain identifiable intangibles and goodwill. The statement
also required that long-lived assets to be disposed of be reported at the lower
of the carrying amount or fair value less costs to sell. The adoption of the
statement, based on conditions existing at the beginning of the year, did not
require a write-down of assets. Additional disclosures are included in Note 3.
Dollars in thousands except per share amounts
<PAGE>
Accounting Changes -- Stock-Based Compensation.
In 1996, Lukens also adopted, "Accounting for Stock-Based Compensation," SFAS
No. 123. This statement provided for an implementation option, reflecting the
controversy surrounding the measurement of compensation expense for stock
options and other stock-based compensation. One option was to recognize
compensation expense in the consolidated financial statements using a fair-value
based method, applied to virtually all stock-based compensation. The alternative
did not change the current intrinsic-value approach of expense recognition, but
required pro forma disclosure in the notes to consolidated financial statements
using the fair-value method. We elected to continue the intrinsic-value method
of expense recognition and to provide the pro forma disclosures required under
SFAS No. 123. Additional disclosures are included in Note 6.
2. Business Groups
Listed below is a description of our business groups, which operate primarily in
the United States. Sales to foreign countries are not significant. With the
continued integration of our facilities, effective in 1996 business group
results are reported on a product line basis. The new groups are the Carbon &
Alloy Group and the Stainless Group. Prior year results have been restated to
conform with these business groups.
Carbon & Alloy Group -- specializes in the production of carbon, alloy and clad
plate steels. The group operates in a wide range of markets in the capital goods
sector of the economy. Steel service centers, the largest market for the group,
accounted for approximately 38 percent of annual sales in the last three years.
The primary facilities are located in Coatesville and Conshohocken,
Pennsylvania. A contract for the bargaining unit employees at the Coatesville
plant was ratified in early 1996. The contract provided for improvements in
compensation and benefits, and terminates on January 31, 2000.
Stainless Group -- specializes in the production of stainless steel sheet,
strip, plate, hot band and slabs. Manufacturing facilities located in Houston
and Washington, Pennsylvania, and Massillon, Ohio, primarily serve the capital
goods and consumer durables sectors of the economy. Labor contracts for these
facilities expire in 1999 and 2000. The group also operates stainless steel
service centers in the United States and Canada. The primary market for the
group is service centers, which represented approximately 37 percent of annual
sales in the last three years.
Summary business group information is included in the following chart.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------- ------------- ------------
<S> <C> <C> <C>
Net sales
Carbon & Alloy $ 481,237 439,330 463,249
Stainless 489,083 609,828 483,764
- --------------------------------------- ------------- ------------
$ 970,320 1,049,158 947,013
Operating earnings (loss)
Carbon & Alloy/a/ $( 2,554) 11,946 24,584
Stainless/b/ ( 7,058) 75,148 41,640
Corporate/c/ ( 16,441) (19,114) (16,654)
- --------------------------------------- ------------- ------------
$( 26,053) 67,980 49,570
Assets
Carbon & Alloy $ 421,034 420,665 392,267
Stainless 440,711 468,515 395,034
Corporate/d/ 27,006 30,483 12,598
Discontinued Operations -- -- 26,535
- --------------------------------------- ------------- ------------
$ 888,751 919,663 826,434
Depreciation and
amortization
Carbon & Alloy $ 23,453 18,696 18,864
Stainless 24,505 21,994 20,834
Corporate 991 376 743
Discontinued Operations -- 238 3,521
- --------------------------------------- ------------- ------------
$ 48,949 41,304 43,962
Capital expenditures
Carbon & Alloy $ 13,747 36,940 98,611
Stainless 40,298 63,803 19,624
Corporate 3,047 3,236 373
Discontinued Operations -- 141 1,734
- --------------------------------------- ------------- ------------
$ 57,092 104,120 120,342
- --------------------------------------- ------------- ------------
</TABLE>
a. Carbon & Alloy Group Operating Results: 1996 -- Results included a $3,756
charge for signing bonuses associated with the bargaining unit contract
discussed previously. Unusual items discussed in Note 3 included a $6,178 work
force reduction charge and a provision for environmental remediation of $9,400.
b. Stainless Group Operating Results: 1996 -- As discussed in Note 3, results
included provisions of $3,695 for a work force reduction and $5,933 for fixed
asset write-downs.
c. Corporate Expenses: 1996 -- Expenses included a $909 work force
reduction charge (Note 3) and environmental expenses, offset by reduced
professional fees and incentive compensation expense. 1995 -- Results
included higher incentive compensation expense and environmental expenses.
Corporate environmental expenses are associated with properties retained from
divested subsidiaries.
d. Corporate Assets: Corporate assets consist primarily of cash and cash
equivalents, properties held for sale, office facilities and deferred income
taxes.
Dollars in thousands except per share amounts
<PAGE>
3. Unusual Items
Work Force Reduction. During the second quarter of 1996, Lukens announced a
work force reduction program of approximately 150 salaried positions. The
program was primarily aimed at reducing costs by integrating administrative
functions. Termination benefits accrued and charged to expense in the second
quarter totaled $10,782. On an after-tax basis, the provision reduced results by
$6,859, or $.46 per share.
The charge included severance related benefits of $6,784. Termination benefits
paid and charged against the liability as of December 28, 1996, were $2,545. The
remaining severance benefits are anticipated to be paid primarily during 1997.
Pension related benefits included $3,998 from the combination of pension plan
benefits that are triggered at termination and from the recognition of a
curtailment loss. Pension benefits were measured at a 7.75 percent discount
rate.
Environmental Remediation. During the fourth quarter of 1996, $9,400 of expenses
for environmental remediation were recognized. The provision represented our
best estimate of costs for a Superfund site and other waste disposal sites. On
an after-tax basis, the charge reduced results by $5,978, or $.40 per share.
Fixed Asset Write-Downs. Fixed asset write-downs were recorded during the
fourth quarter of 1996 for idle assets and other equipment replaced as a result
of capital improvements. The charge increased the pre-tax loss by $5,933 and the
net loss by $3,836, or $.26 per share.
4. Retiree Benefits
Pensions. Lukens has defined benefit plans that provide pension and survivor
benefits for most employees. Benefits are primarily based on the combination of
years of service and compensation. Plans are funded in accordance with
applicable regulations.
The components of pension expense are listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------- --------- ---------
<S> <C> <C> <C>
Service cost for
benefits earned $ 8,246 6,829 8,259
Interest cost on projected
benefit obligation 30,298 29,279 26,560
Actual return on assets (44,870) (67,841) (5,207)
Amortization and deferrals
Deferred return on assets 13,894 41,770 (22,105)
Prior service cost 4,263 2,900 2,894
Other, net 100 25 250
- --------------------------------------- --------- ---------
Net pension expense $ 11,931 12,962 10,651
- -------------------------------------------------------------
</TABLE>
The following table reconciles the net funded status of our plans to amounts
recognized in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------- ---------
<S> <C> <C>
Actuarial present value of
Vested benefit obligation/a/ $ (365,780) (340,554)
Nonvested benefit obligation/a/ ( 33,013) (34,386)
- -------------------------------------------------------- ---------
Accumulated benefit obligation/a/ (398,793) (374,940)
Effect of projected future
compensation/a/ ( 24,765) (36,295)
- -------------------------------------------------------- ---------
Projected benefit obligation/a/ (423,558) (411,235)
Plan assets at fair value/b/ 365,083 339,406
- -------------------------------------------------------- ---------
Plan assets less than projected
benefit obligation ( 58,475) (71,829)
- -------------------------------------------------------- ---------
Unrecognized net loss (gain) ( 15,735) 18,145
Unrecognized prior service cost/a/ 41,642 28,573
Unrecognized net obligation
at transition 178 220
Adjustment to recognize
minimum liability/c/ ( 14,503) (13,110)
- -------------------------------------------------------- ---------
Net pension liability $( 46,893) (38,001)
- -------------------------------------------------------------------
</TABLE>
a. The increase in 1996 benefit obligations reflected improvements to the
bargaining unit plan in the Carbon & Alloy Group and improvements to the Lukens
Inc. salary plan. As discussed in Note 3, a work force reduction also resulted
in higher benefit obligations. A higher discount rate partially offset the
increased obligations.
b. Plan assets primarily consist of stocks, bonds and short-term investments.
Contributions to defined benefit plans were $7,563 in 1996 and $12,726 in 1995.
c. The minimum liability was recognized in intangible assets in the
Consolidated Balance Sheets.
Dollars in thousands except per share amounts
<PAGE>
Notes to Consolidated Financial Statements
The net pension liability was recognized in the following accounts in the
Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------- ------------
<S> <C> <C>
Accrued employment costs $ ( 7,753) (3,881)
Retirement benefits -- pensions (43,995) (39,275)
Intangible assets 4,855 5,155
- ---------------------------------------------- ------------
Net pension liability $ (46,893) (38,001)
- ------------------------------------------------------------
</TABLE>
Significant assumptions used in the calculation of expense and obligations are
listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------- ------------ -----------
<S> <C> <C> <C> <C>
Discount rate % 7.5 7.0 8.7
Rate of compensation
increase % 3-7 3-7 3-7
Long-term rate of return
on plan assets % 9.5 9.5 9.5
</TABLE>
Retiree Medical and Life Insurance Benefits. Lukens provides retiree medical and
life insurance benefits for most employees if they continue to work for the
company until they reach retirement age.
As required under the 1996 contract for bargaining unit employees at
Coatesville, Pennsylvania, a Voluntary Employees' Beneficiary Association (VEBA)
Trust was established to provide funding for retiree medical and life insurance
programs. The trust agreement requires an annual contribution of $2,500 during
the four-year term of the contract. The initial contribution was made on July 1,
1996.
Benefit payments from the trust are restricted until required funding levels are
achieved. Based on current conditions, benefit payments from the trust are not
anticipated in the short term. In addition to the VEBA requirement, benefits are
funded as claims are submitted.
The components of retiree medical and life insurance expense are listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- ---------------------------------------- --------- ---------
<S> <C> <C> <C>
Service cost for
benefits earned $ 2,794 2,074 3,293
Interest cost on accu-
mulated postretirement
benefit obligation 10,939 10,433 10,524
Actual return on assets ( 67) -- --
Net amortization
and deferrals ( 49) (500) --
- ---------------------------------------- --------- ---------
Net postretirement
benefit expense $ 13,617 12,007 13,817
- --------------------------------------------------------------
</TABLE>
The following table reconciles the actuarial present value of our obligations to
the liability recognized in the Consolidated Balance Sheets.
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------ ----------
<S> <C> <C>
Accumulated postretirement
benefit obligation
Retirees/a/ $( 83,179) ( 96,062)
Fully eligible active participants/a/ ( 21,398) ( 22,954)
Other active participants/a/ ( 37,888) ( 38,205)
- ------------------------------------------------------ ----------
Total accumulated postretirement
benefit obligation/a,b/ (142,465) (157,221)
Plan assets at fair value/c/ 2,567 --
- ------------------------------------------------------ ----------
Plan assets less than accumulated
postretirement benefit obligation (139,898) (157,221)
Unrecognized (gain) loss ( 11,081) 10,820
- ------------------------------------------------------ ----------
Net postretirement
benefit liability/d/ $(150,979) (146,401)
- ------------------------------------------------------------------
</TABLE>
a. The decrease in the 1996 benefit obligations primarily reflected a higher
discount rate and increased participation in Medicare HMO's that lowered average
per capita costs.
b. Obligations include life insurance benefits of $15,109 in 1996 and
$18,159 in 1995.
c. Plan assets consist of short-term investments.
d. At year-end 1996, $2,500 was included in current liabilities -- accrued
employment costs for the 1997 VEBA contribution.
Significant assumptions used in the calculation of expense and obligations are
listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------- ------------- ------------
<S> <C> <C> <C> <C>
Discount rate % 7.5 7.0 8.7
Health-care cost increase/a/ % 6.7-8.1 6.9-8.6 7.2-9.0
Long-term rate of return
on plan assets % 5.0 -- --
- ------------------------------------------------------------------------------
</TABLE>
a. Health-care cost increase assumptions are reduced to a rate of 5%
beginning in 2003.
A one-percentage point increase in the medical cost trend rate for each year
would increase the accumulated postretirement benefit obligation by
approximately $25,300 and would increase net postretirement benefit expense by
approximately $2,400.
Dollars in thousands except per share amounts
<PAGE>
Notes to Consolidated Financial Statements
5. Income Taxes
The effective tax rate that determined the income tax expense (benefit)
recognized is listed below. Essentially all earnings and losses are from United
States sources.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------- -------- --------
<S> <C> <C> <C> <C>
Federal statutory rate % (35.0) 35.0 35.0
State income taxes net of
federal tax benefit .1 2.4 2.2
State income tax changes -- .2 .7
Non-deductible expenses 1.9 1.5 1.6
Other ( .6) (1.5) (.5)
- ------------------------------------------------- -------- --------
Effective income tax rate % (33.6) 37.6 39.0
- ---------------------------------------------------------------------
</TABLE>
The components of the deferred income tax assets (liabilities) are listed below.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------- --------
<S> <C> <C>
Deferred tax assets
Retirement benefits $ 75,330 75,343
Tax credit carryforwards 17,500 --
Other deductible temporary
differences 24,210 16,797
Valuation allowance ( 2,705) ( 2,575)
- -------------------------------------------------- --------
114,335 89,565
Deferred tax liabilities
Plant and equipment ( 61,612) (50,219)
Other taxable temporary differences ( 9,657) (14,603)
- -------------------------------------------------- --------
( 71,269) (64,822)
- -------------------------------------------------- --------
Net deferred tax assets $ 43,066 24,743
- ------------------------------------------------------------
</TABLE>
The current and deferred components of the income tax expense (benefit) are
listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- -------------------------------------------------- -------- --------
<S> <C> <C> <C>
Current
U.S. Federal $ 3,272 11,439 5,470
State and other 865 1,609 971
- -------------------------------------------------- -------- --------
4,137 13,048 6,441
Deferred to future years
U.S. Federal ( 18,720) 4,870 7,033
State and other 76 2,494 435
- -------------------------------------------------- -------- --------
( 18,644) 7,364 7,468
Change in tax rate -- 83 757
Change in valuation
allowance 130 -- (487)
Income tax expense (benefit)
- -------------------------------------------------- -------- --------
$ ( 14,377) 20,495 14,179
- ----------------------------------------------------------------------
</TABLE>
On a cash basis, the following amounts of income taxes were paid.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
$4,938 $13,018 $4,040
</TABLE>
At year-end 1996, $17,500 of alternative minimum tax credit carryforwards were
available.
The Internal Revenue Service has completed its audits through 1992. Management
believes that the outcome of the outstanding audits will not have a material
adverse effect on the financial condition, liquidity or results of operations of
the company.
6. Compensation Plans
Stock Options. The 1985 Stock Option and Appreciation Plan provides for the
issuance of non-qualified stock options and incentive stock options (ISO's) to
officers and other executives. At the Annual Meeting of Stockholders on April
24, 1996, stockholders approved an amendment to the plan that increased the
number of shares of common stock available for issuance by 900,000 to a total of
2,737,500. These options to purchase Lukens common stock can be granted until
February 26, 1998, at an exercise price not less than the fair market value on
the grant date. Beginning in 1995, options were issued as part of an executive
incentive compensation program. These options vest after three years and expire
in seven years. All other options vest after one year and expire in 10 years.
The Lukens Inc. Stock Option Plan for Non-Employee Directors provides for the
issuance of up to 75,000 non-qualified options to purchase Lukens common stock
at an exercise price based on the fair market value on the grant date. These
options vest after one year and expire in 10 years.
During 1991, 330,000 non-qualified stock options were granted to Mr. Van Sant as
part of his employment agreement. These options become exercisable ratably over
11 years. The options carry an exercise price of $23.38 per share, which was 85
percent of the fair market value on the grant date. Compensation expense from
this discount from fair market value is being recognized on a straight-line
basis over the term of his employment agreement.
Dollars in thousands except per share amounts
<PAGE>
During 1996, Lukens adopted a new stock-based compensation accounting standard,
discussed in Note 1. As provided for in the statement, the company elected to
continue the intrinsic-value method of expense recognition. If compensation cost
for these plans had been determined using the fair-value method prescribed by
SFAS No. 123, the company's results would have been reduced to the pro forma
amounts indicated below.
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------- -------
<S> <C> <C>
Net earnings (loss) $ (29,703) 33,028
- ------------------------------------------------------------------------
Primary earnings (loss) per share $ ( 2.14) 2.10
Fully diluted earnings (loss) per share $ ( 2.14) 1.99
- -----------------------------------------------------------------------
</TABLE>
The pro forma effect on results may not be representative of the impact in
future years because the fair-value method was not applied to options granted
before 1995.
The fair value of each option was estimated on the grant date using the Black-
Scholes option pricing model. Based on the assumptions presented below, the
weighted average fair value of options granted was $7.26 per option in 1996 and
$8.76 per option in 1995.
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------- ---------------
<S> <C> <C> <C>
Expected life in years 7.0 7.0
Risk-free interest rate % 5.6 7.7
Volatility % 27.4 28.5
Dividend yield % 3.6 3.6
- ----------------------------------------------------------------------------
</TABLE>
A summary of stock option activity is presented below.
<TABLE>
<CAPTION>
Weighted
Average
Shares Exercise Price
- ---------------------------------------------------------------- --------------
<S> <C> <C>
1994
Outstanding, beginning of year 683,918 $26.54
Granted 127,650 $35.92
Exercised ( 35,950) $25.01
Forfeited/canceled ( 7,800) $44.67
- ---------------------------------------------------------------- --------------
Outstanding, end of year 767,818 $27.99
- ---------------------------------------------------------------- --------------
Exercisable, end of year 401,868 $28.26
- ---------------------------------------------------------------- --------------
Available for grant, end of year 654,775
- ----------------------------------------------------------------
1995
Outstanding, beginning of year 767,818 $27.99
Granted 246,347 $28.19
Exercised ( 50,525) $18.23
Forfeited/canceled ( 28,445) $35.02
- ---------------------------------------------------------------- --------------
Outstanding, end of year 935,195 $28.35
- ---------------------------------------------------------------- --------------
Exercisable, end of year 487,643 $30.58
- ---------------------------------------------------------------- --------------
Available for grant, end of year 436,873
- ----------------------------------------------------------------
1996
Outstanding, beginning of year 935,195 $28.35
Granted 308,942 $27.81
Exercised ( 36,750) $21.82
Forfeited/canceled ( 33,800) $32.26
- ---------------------------------------------------------------- --------------
Outstanding, end of year 1,173,587 $28.30
- ---------------------------------------------------------------- --------------
Exercisable, end of year 618,893 $29.93
- ---------------------------------------------------------------- --------------
Available for grant, end of year 1,061,731
- ----------------------------------------------------------------
</TABLE>
For options outstanding at the end of 1996, exercise prices ranged from $16.625
to $47.25 and the weighted average remaining life was approximately 7 years.
Incentive Compensation. Most Lukens employees participate in incentive
compensation plans. These plans are based on the consolidated results of Lukens
Inc., and on the results and performance measures of various subsidiaries.
Compensation expense under these plans is listed below.
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C>
$9,944 $24,875 $17,444
</TABLE>
Dollars in thousands except per share amounts
<PAGE>
Employee Stock Ownership Plan (ESOP). The Lukens ESOP was designed to provide
401(k) employer matching benefits to most salaried employees in the form of
convertible preferred stock. The stock was acquired with the proceeds from a
$33,075 term loan (Note 8). The stock is released for allocation to
participants' accounts based on the relationship of debt and interest payments
to the total of all scheduled debt and interest payments. Dividends on allocated
stock are paid, in-kind, with preferred stock. As discussed in Note 8, the
quarterly payments of the ESOP debt were restructured in 1996. The projected
maturities of the ESOP loan over the remaining term are listed below.
1997 1998 1999
$4,812 $6,103 $4,459
The loan is guaranteed by Lukens, and the outstanding balance is recognized as
debt in the Consolidated Balance Sheets. An offsetting amount, representing
deferred compensation measured by the stated value of convertible preferred
stock, was recognized in the stockholders' investment section in 1995. In 1996,
this account was reclassified as redeemable stock, discussed in Note 9. Debt
service requirements of the ESOP are met by the combination of Lukens' cash
contributions to the ESOP and dividends on the preferred stock.
Regarding expense recognition, cash contributions to the ESOP are recorded as
compensation expense, and preferred stock dividends reduce retained earnings.
This recognition results in interest expense incurred on the ESOP debt not being
recognized as interest expense on Lukens' financial statements. Cash
contributions are listed below.
1996 1995 1994
$3,187 $2,784 $2,551
7. INVENTORIES
The components of inventory are listed below.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------- --------
<S> <C> <C>
Products finished and in process $116,477 131,886
Raw materials 27,762 26,240
Supplies 4,686 4,999
- -------------------------------------------------------- --------
Inventories/a/ $148,925 163,125
- ------------------------------------------------------------------
</TABLE>
/a/ The percent of inventories accounted for under the LIFO inventory valuation
method was 80% in 1996 and 1995.
The estimated cost to replace inventories at year-end was $192,000 in 1996 and
$209,000 in 1995.
8. FINANCIAL INSTRUMENTS
Long-Term Debt. Listed below is a summary of long-term debt outstanding.
<TABLE>
<CAPTION>
Years Due 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Notes payable, face amount 2004 $ 150,000 150,000
Unamortized discount ( 486) ( 550)
Coupon interest at 7.625%
Effective interest at 7.691%
Medium-term notes,
face amount 2006 75,000 --
Unamortized discount ( 419) --
Coupon interest at 6.5%
Effective interest at 6.585%
Short-term notes/a/ 2002 10,700 47,900
Other/b/ 1997-2009 3,404 11,435
ESOP debt guarantee/c/ 1997-1999 15,374 19,404
- --------------------------------------------------------------------------------------
Total debt/d/ 253,573 228,189
Less current portion 4,878 10,850
- --------------------------------------------------------------------------------------
Long-term debt $ 248,695 217,339
- --------------------------------------------------------------------------------------
</TABLE>
a. The weighted-average interest rate was 5.7% at year-end 1996 and 6.1%
at year-end 1995. Short-term notes are classified as long term because they
are supported by the revolving credit agreement discussed below.
b. Consists of industrial revenue bonds. The 1995 balance also included a
$5,000 term loan.
c. The ESOP debt, guaranteed by Lukens, carries an 8.26% interest rate on
$11,188 as of December 28, 1996. The remaining ESOP debt carries a variable rate
of 80.5% of the Prime Rate. For a discussion on ESOP accounting, see Note 6.
During 1996, the quarterly payments of the ESOP debt were restructured to align
anticipated benefits with the release of preferred stock (Note 9). The terms of
the variable-interest rate portion of the ESOP debt were not changed.
d. Annual maturities of long-term debt, excluding the ESOP debt guarantee, over
the next five years are listed below.
1997 1998 1999 2000 2001
$66 $68 $71 -- --
Dollars in thousands except per share amounts
<PAGE>
Notes Payable. There are $150,000 of notes due in 2004. Interest is payable
semi-annually. In June 1994, a shelf registration for an additional $100,000 of
Lukens notes was completed. The notes were structured to provide Lukens with
flexibility in maturities, from nine months to 30 years, and flexibility in
interest rate structures.
During the first quarter of 1996, $75,000 of Medium-Term Notes, Series A, were
issued from the shelf registration. Interest is payable semi-annually and the
notes mature in 2006. Proceeds from the notes were primarily used to repay the
outstanding balance of the revolving credit agreement. All Lukens notes are
currently rated Baa2 by Moody's and BBB+ by Standard and Poor's.
Revolving Credit Agreement. In 1995, Lukens amended its revolving credit
agreement to provide for a $150,000 committed line of credit, an increase of
$25,000. During the fourth quarter of 1996, the term of the agreement was
extended until January 15, 2002.
Interest is based on one of the following rates:
. the higher of the Prime Rate or the Federal Funds
Rate plus .5%
. London Inter-Bank Offered Rate (LIBOR) adjusted for applicable reserves
plus .225% to .5% depending on the Standard and Poor's or Moody's rating of the
long-term notes of Lukens
. competitively bid rates from lenders.
A facility fee is required on the total line of credit and ranges from .125% to
.3% based on the lower of Standard and Poor's or Moody's rating of Lukens long-
term notes.
The agreement includes covenants that require a maximum leverage ratio (defined
in the agreement) of 55% and restrictions on additional debt and asset
dispositions. At year-end 1996, additional borrowings were limited to
approximately $60,000 under these covenants.
Interest Expense. Interest costs include interest on obligations and
amortization of debt set-up costs. For a discussion of ESOP debt accounting, see
Note 6. Interest components are listed below.
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------- ------- -------
<S> <C> <C> <C>
Costs incurred $ 19,005 16,395 15,749
Interest capitalized ( 2,270) (2,924) (2,536)
- ------------------------------------------------------------- ------- --------
Interest expense $ 16,735 13,471 13,213
- ------------------------------------------------------------- ------- --------
Interest paid $ 17,436 16,107 16,253
- --------------------------------------------------------------------------------
</TABLE>
Derivative Financial Instruments -- Commodity Hedges.
As of year-end 1996, Lukens was party to several commodity hedge agreements
maturing in 1997. Based on year-end market conditions, the value of Lukens'
contractual obligations for these commodity hedges was $16,175 and the
obligation of the counterparties to the agreements was $13,973. Gains and losses
on these contracts are recognized as a component of cost of products sold.
Lukens is exposed to credit risk from nonperformance by the counterparties to
these agreements.
Fair Value of Financial Instruments. The following table presents the fair
value of certain financial instruments as of year-end 1996 and 1995.
<TABLE>
<CAPTION>
Asset (Liability)
Book Value Fair Value
- --------------------------------------------------------------------------------
<S> <C> <C>
1996
Debt/a/ $ (253,573) (254,201)
Commodity hedges/b/ $ -- ( 1,956)
- --------------------------------------------------------------------------------
1995
Debt/a/ $ (228,189) (240,581)
Commodity hedges/b/ $ -- ( 1,296)
- --------------------------------------------------------------------------------
</TABLE>
a. Fair value was determined by discounting cash flows using comparable year-
end market interest rates.
b. Fair value was estimated by using quotes from brokers.
9. STOCKHOLDERS' INVESTMENT AND REDEEMABLE STOCK
Common Stock. There are 40,000,000 common shares authorized with a par value of
$.01 per share. Under the stock option plans discussed in Note 6, 3,142,500
shares of common stock have been reserved.
Preferred Stock. There are 1,000,000 shares of series preferred stock, par
value $.01 per share, authorized. An ESOP was established in 1989 with the
issuance of 551,250 shares of Series B Convertible Preferred Stock. The
preferred stock is stated at its liquidation preference of $60 per share and
carries an annual cumulative dividend of $4.80 per share. Each share may be
converted into three shares of common stock within the guidelines of an employee
401(k) savings plan (Note 6). Holders of the Series B preferred stock are
entitled to vote upon all matters submitted to the holders of common stock for a
vote. The number of votes is equal to the number of common shares into which the
preferred shares are convertible. Lukens' redemption price of $62.40 per share
declines gradually each year to $60 per share on or after July 2, 2000.
Under the terms of the 401(k) plan, when the price of Lukens common stock is $20
per share or greater, the preferred stock is redeemable in common stock, cash or
a combination at the option of Lukens. If the price is below $20 per share, the
401(k) participants have the option to redeem preferred stock in the combination
above.
Dollars in thousands except per share amounts
<PAGE>
Redeemable Stock. At year-end 1996, Series B Convertible Preferred Stock and
the related ESOP deferred compensation (Note 6) were classified as redeemable
stock because the price of Lukens common stock was below $20 per share at the
fiscal year-end, December 28, 1996. The reclassification from stockholders'
investment reflected the ability of 401(k) participants to elect a cash payout
option at redemption. The classification was not made in prior years because the
company had the ability and intention to redeem preferred stock with Lukens
common stock.
Shareholder Rights Plan. Lukens has a Shareholder Rights Plan designed to deter
coercive or unfair takeover tactics and to prevent a buyer from gaining control
of Lukens without offering a fair price to stockholders. The plan entitles each
outstanding share of common stock to four-ninths (reflects adjustment for 1988
and 1992 common stock splits) of a right. Each right entitles stockholders to
buy one one-hundredth of a share of Series A Junior Participating Preferred
Stock at an exercise price of $110. The rights become exercisable if a person or
group acquires or makes a tender or exchange offer for 20 percent or more of
common stock outstanding. The rights can also become exercisable if the Board of
Directors determines, with the concurrence of outside directors, that a person
has certain interests adverse to Lukens and has acquired at least 10 percent of
common stock outstanding.
If the company is then acquired in a merger or other business combination
transaction, each right will entitle the holder to receive, upon exercise,
common stock of either Lukens or the acquiring company having a value equal to
two times the exercise price of a right.
Lukens will generally be entitled to redeem the rights at $.05 per right at any
time until the tenth day following public announcement that a 20 percent
position has been acquired. The purchase rights will expire on August 10, 1997.
Of the 1,000,000 shares of series preferred stock authorized, 75,000 have been
reserved for the Series A preferred stock discussed above. As of December 28,
1996, there were 6,578,787 rights outstanding.
In September 1996, the Board of Directors adopted the Renewed Rights Agreement,
effective when the existing plan expires. The Renewed Rights Agreement is
substantially identical to the existing plan with the following
modifications:
. each outstanding share of common stock is entitled
to one right
. each right entitles stockholders to buy one one-hundredth of a share of
Series A Junior Participating Preferred Stock at an exercise price of $80
. the rights become exercisable if a person or group acquires or makes a
tender or exchange offer for 15 percent or more of common stock outstanding
. Lukens will generally be entitled to redeem the rights at $.01 per right at
any time until the tenth day following public announcement that a 15 percent
position has been acquired
. the purchase rights will expire on September 25, 2006, unless the Board of
Directors extends the final expiration date or redeems the rights earlier.
10. Commitments and Contingencies
Leases. Lukens has various operating leases primarily for real estate and
production equipment. At year-end 1996, minimum rental payments under
noncancelable leases totaled $26,194. Listed below are the scheduled payments
over the next five years for these leases.
1997 1998 1999 2000 2001
$5,167 $4,736 $3,855 $2,395 $2,321
Rent expense for all operating leases is listed below.
1996 1995 1994
$8,091 $7,177 $7,459
Environmental Remediation. Lukens has been designated a potentially responsible
party under Superfund law at certain waste disposal sites and continually
monitors a range of other environmental issues. Superfund designations are made
regardless of the extent of the company's direct or indirect involvement. These
claims are in various stages of administrative or judicial proceedings, and
include demands for recovery of incurred costs and for future investigation or
remedial actions. The company accrues costs associated with environmental
matters when they become probable and can be reasonably estimated. In assessing
environmental liability, the company considers the extent and type of hazardous
substances at a site, the range of technologies that can be used for
remediation, evolving laws and regulations, the allocation of costs among
potentially responsible parties, and the number and financial strength of those
parties.
Dollars in thousands except per share amounts
<PAGE>
Based on information currently available, the liability recorded for
environmental remediation costs was approximately $16,800 at year-end 1996 (Note
3) and $5,400 at year-end 1995. Due to their uncertain nature, amounts accrued
could differ, perhaps significantly, from the actual costs that will be
incurred. No potential insurance recoveries were taken into account in
determining the company's cost estimates or reserves. Management does not
anticipate that its financial position will be materially affected by additional
environmental remediation costs, although quarterly or annual operating results
could be materially affected by future developments.
Litigation. Since 1992, approximately 394 current and former employees have
filed workers' compensation hearing loss claims against Lukens Steel Company, a
wholly-owned subsidiary. As of year-end 1996, 374 of the workers' compensation
claimants had released their claims or received negotiated payments. Since 1994,
approximately 29 workers' compensation hearing loss claims have been alleged
against Washington Steel Corporation, a wholly-owned subsidiary. Hearing loss
reserves were determined using existing workers' compensation regulations and
estimates from specialists in the field. In the opinion of management,
established reserves are adequate to cover potential awards and defense costs
resulting from these claims.
The company is party to various claims, disputes, legal actions and other
proceedings involving product liability, contracts, equal employment
opportunity, occupational safety and various other matters. In the opinion of
management, the outcome of these matters should not have a material adverse
effect on the consolidated financial condition or results of operations of the
company.
Commitments. At year-end 1996, purchase commitments for capital expenditures
were $8,203. Capital expenditures projected for 1997 are approximately $42,000.
Lukens Steel Company has a long-term contract for the supply of oxygen and
related products to its facility in Coatesville, Pennsylvania. The contract runs
until 2007 and has take-or-pay provisions totaling $26,630 for the remaining
term. Annual minimum commitments are $2,598, which can be adjusted for
inflation.
Report of Independent Public Accountants
To the Stockholders and Board of Directors, Lukens Inc.:
We have audited the accompanying consolidated balance sheets of Lukens Inc. (a
Delaware Corporation) and subsidiaries as of December 28, 1996 and December 30,
1995 and the related consolidated statements of earnings, stockholders'
investment and cash flows for each of the three fiscal years in the period ended
December 28, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lukens Inc. and subsidiaries as
of December 28, 1996 and December 30, 1995, and the results of their operations
and their cash flows for each of the three fiscal years in the period ended
December 28, 1996 in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 20, 1997
Dollars in thousands except per share amounts
<PAGE>
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
Quarter Quarter Quarter Quarter Year
- --------------------------------------------------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
1996
Net sales $ 264,172 255,955 234,421 215,772 970,320
Cost of products sold $ 252,464 236,343 223,192 203,114 915,113
Net earnings (loss) $ ( 4,375) ( 5,733)/c/ ( 4,087) ( 14,216)/d/ ( 28,411)
-------------------------------------------------- -------- -------- -------- -------
1995
Net sales $ 259,957 271,825 254,660 262,716 1,049,158
Cost of products sold $ 228,687 237,733 222,825 233,422 922,667
Net earnings $ 9,096 9,547 8,698 6,673 34,014
--------------------------------------------------------------------------------------------------------
PER COMMON SHARE
1996
Primary earnings (loss)/a/ $ ( .33) ( .42)/c/ ( .31) ( .99)/d/ ( 2.06)
Fully diluted earnings (loss)/a/ $ ( .33) ( .42)/c/ ( .31) ( .99)/d/ ( 2.06)
Dividends $ .25 .25 .50/b/ -- 1.00
-------------------------------------------------- -------- -------- -------- -------
1995
Primary earnings/a/ $ .58 .61 .55 .42 2.16
Fully diluted earnings/a/ $ .55 .57 .52 .40 2.05
Dividends $ .25 .25 .25 .25 1.00
--------------------------------------------------------------------------------------------------------
MARKET PRICES OF COMMON STOCK
1996
High $ 30 1/4 27 3/8 24 1/8 19 1/4 30 1/4
Low $ 24 1/4 23 3/4 18 1/8 13 1/2 13 1/2
Close $ 24 7/8 23 7/8 18 1/8 19 1/8
-------------------------------------------------- -------- -------- -------- -------
1995
High $ 30 7/8 35 1/2 34 1/4 31 5/8 35 1/2
Low $ 25 3/4 30 1/4 28 3/4 26 3/4 25 3/4
Close $ 30 1/2 32 1/4 29 1/8 28 3/4
- ---------------------------------------------------------------------------------------------------------
</TABLE>
a. Earnings (loss) per share calculations were based on the weighted average
shares and equivalents outstanding during the period reported. No adjustments
were made that would be antidilutive or reduce the loss per share. Consequently,
the sum of the quarterly per share amounts may not equal the annual per share
amounts.
b. Due to the timing of the Board of Directors meetings, two quarterly common
stock dividends were declared in the third quarter, totaling $.50 per share.
c. A $10,782 work force reduction charge reduced results by $6,859, or $.46 per
share (Note 3).
d. Results include unusual charges of $15,333 for an environmental remediation
provision (Note 3) and fixed asset write-downs (Note 3). On an after-tax basis,
the provisions reduced results by $9,814, or $.66 per share.
Dollars in thousands except per share amounts and market prices of common stock
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
a. Directors
The information contained in the section entitled "Election of Directors"
in the Lukens Inc. 1997 Proxy Statement is incorporated herein by reference
in response to this item.
b. Executive Officers of the Registrant
Information required by this item is contained in Part I of this Form 10-K
in the section entitled "Executive Officers of the Registrant."
c. Compliance With Section 16(a)
Information contained in the section entitled "Section 16(a) Beneficial
Ownership Reporting Compliance" in the Lukens Inc. 1997 Proxy Statement is
incorporated herein by reference in response to this item.
ITEM 11. EXECUTIVE COMPENSATION.
The information contained in the sections entitled "Management" and "Report of
Executive Development and Compensation Committee" in the Lukens Inc. 1997 Proxy
Statement is incorporated herein by reference in response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information contained in the sections entitled "Principal Holders of Stock"
and "Management" in the Lukens Inc. 1997 Proxy Statement is incorporated herein
by reference in response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information contained in the section entitled "Certain Transactions" in the
Lukens Inc. 1997 Proxy Statement is incorporated herein by reference in response
to this item.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a. Documents filed as a part of this report.
1. Financial Statements
No financial statements have been filed with this Form 10-K other than
those included in Item 8.
2. Financial Statement Schedules
II Valuation and Qualifying Accounts
Schedules, other than Schedule II, have been omitted because they are
not applicable.
3. Exhibits
See Index to Exhibits.
b. Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter ended December 28,
1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
LUKENS INC.
(Registrant)
Date: February 26, 1997 By /s/ R. W. Van Sant
---------------------
R. W. Van Sant
Chairman and
Chief Executive Officer
<PAGE>
SIGNATURES (continued)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below, as of February 26, 1997, by the following persons on
behalf of the registrant and in the capacities indicated.
Signature and Title
/s/ Michael O. Alexander /s/ David B. Price, Jr.
------------------------ ----------------------
Michael O. Alexander David B. Price, Jr.
Director Director
/s/ Rod Dammeyer /s/ Joab L. Thomas
---------------- ------------------
Rod Dammeyer Joab L. Thomas
Director Director
/s/ T. Kevin Dunnigan /s/ W. Paul Tippett
--------------------- -------------------
T. Kevin Dunnigan W. Paul Tippett
Director Director
/s/ Ronald M. Gross /s/ R. W. Van Sant
------------------- ------------------
Ronald M. Gross R. W. Van Sant
Director Chairman and
Chief Executive Officer
/s/ Sandra L. Helton /s/ John C. van Roden, Jr.
-------------------- --------------------------
Sandra L. Helton John C. van Roden, Jr.
Director Senior Vice President and Chief
Financial Officer
/s/ William H. Nelson, III /s/ P. Blaine Clemens
-------------------------- ---------------------
William H. Nelson, III P. Blaine Clemens
Director Vice President and Controller
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in the Lukens Inc. 1996 Annual Report
to stockholders, included or incorporated by reference in this Form 10-K, and
have issued our report thereon dated January 20, 1997. Our audits were made for
the purpose of forming an opinion on those statements taken as a whole. The
financial statement schedule referred to in Item 14 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. The financial statement schedule has been subjected to
the auditing procedures applied in the audits of the basic financial statements
and, in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
January 20, 1997
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 20, 1997 included or incorporated by reference in this
annual report on Form 10-K, into the Company's previously filed: Form S-8
Registration Statements File Numbers 33-6673, 33-23405, 33-29105, 33-54269, 33-
54271, 33-54371, 33-69780 and 333-09451, and Form S-3 Registration Statement
File Number 33-53681.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
Philadelphia, Pennsylvania
March 21, 1997
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Dollars in Thousands)
Allowance for Doubtful Receivables and Customer Claims
<TABLE>
<CAPTION>
Additions Charged to
Balance at ----------------------- Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions (a) Period
- --------------------- ---------- --------- ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
December 28, 1996 $ 6,632 11,348 - 10,230 7,750
December 30, 1995 $ 7,569 10,044 - 10,981 6,632
December 31, 1994 $ 11,444 10,467 - 14,342 7,569
</TABLE>
(a) Amounts determined not to be collectible, net of recoveries. Amount also
includes a reduction in the reserve from the divestiture of subsidiaries of
$145 in 1995 and $1,159 in 1994.
Deferred Income Tax Asset Valuation Allowance
<TABLE>
<CAPTION>
Additions Charged to
Balance at ---------------------- Balance at
Beginning Costs and End of
Fiscal Year Ended of Period Expenses Other Deductions Period
- --------------------- ---------- --------- ------- --------------- ----------
<S> <C> <C> <C> <C> <C>
December 28, 1996 $ 2,575 130 - - 2,705
December 30, 1995 $ 2,575 - - - 2,575
December 31, 1994 $ 3,062 - - 487 2,575
</TABLE>
<PAGE>
INDEX TO EXHIBITS (Note 1)
(3) Certificate of incorporation and by-laws (Note 2)
(4) Instruments Defining the Rights of Security Holders including Indentures
(4.1) Lukens Inc. Indenture dated as of July 1, 1992 (Note 3)
(4.2) Rights Agreement, amended as of July 25, 1990
(4.3) Renewed Rights Agreement, dated as of September 25, 1996 (Note 4)
(10) Material Contracts
(10.1) Lukens Inc. Supplemental Retirement Plan for Target Incentive Plan
Participants, as amended, effective January 1, 1988 (Note 11)
(10.2) Lukens Inc. Supplemental Retirement Plan for Lukens Performance
Incentive Plan Participants, as amended and restated (Note 7)
(10.3) Lukens Inc. Supplemental Retirement Plan for Designated Executives,
as amended and restated, effective April 29, 1992 (Note 7)
(10.4) Lukens Inc. Performance Incentive Plan, effective January 1, 1995
(Note 7)
(10.5) Lukens Inc. 1985 Stock Option and Appreciation Plan, as amended
(Note 5)
(10.6) Lukens Inc. Stock Option Plan for Non-employee Directors (Note 9)
(10.7) Employment Agreement dated October 12, 1991, between R. William Van
Sant and Lukens Inc. (Note 11)
(10.8) Severance Agreement dated October 12, 1991, between R. William Van
Sant and Lukens Inc. (Note 11)
(10.9) Form of Severance Agreement between certain Executive Officers and
Lukens Inc. (Note 12)
(10.10) Form of Indemnification Agreement between certain Executive
Officers and Lukens Inc. (Note 13)
<PAGE>
(10.11) Lukens Inc. Directors' Deferred Payment Plan (Note 14)
(10.12) Guaranty Agreement dated as of June 28, 1989, between Lukens Inc.
and The Toronto-Dominion Bank & Trust Company as Agent for the
Guaranteed Parties (Note 13)
(10.13) Retirement Plan for Non-Employee Directors of Lukens Inc., as
amended through November 30, 1994 (Note 8)
(10.14) Form of Indemnification Agreement between Directors and Lukens
Inc. (Note 13)
(10.15) Amended and Restated Credit Agreement, dated as of April 22,
1992, and Amended and Restated as of September 30, 1992 among
Lukens Inc. and Lukens Steel Company, as the Borrowers, Certain
Commercial Lending Institutions, the Toronto-Dominion Bank, and
NBD Bank, N.A., as the Co-Agents, and Provident National Bank, as
the Administrative Agent (Note 10)
(10.16) First Amendment, dated as of January 15, 1995, to Amended and
Restated Credit Agreement (Note 8)
(10.17) Extension Request, dated as of December 1, 1995, to Amended and
Restated Credit Agreement (Note 6)
(10.18) Extension Request, dated as of December 5, 1996, to Amended and
Restated Credit Agreement
(10.19) Lease among PNC Leasing Corp., Blount, Inc., and Washington Steel
Corporation, dated as of October 1, 1986 (Note 10)
(10.20) Lease Amendment No. 1, dated July 22, 1987, among PNC Leasing
Corp., Blount, Inc. and Washington Steel Corporation (Note 10)
(10.21) Lease Amendment No. 2, Assumption and Consent among PNC Leasing
Corp., Blount, Inc. and Washington Steel Corporation, dated as of
October 18, 1988 (Note 10)
(10.22) Lease Amendment No. 3, Assumption and Consent among PNC Leasing
Corp., Lukens Inc. and Washington Steel Corporation, dated as of
July 21, 1992 (Note 10)
(11) Statement regarding Computation of Per Share Earnings
<PAGE>
(21) Subsidiaries of the Registrant
(23) Consent of Arthur Andersen LLP (Note 15)
(27) Financial Data Schedule
NOTES TO EXHIBITS
1. Copies of exhibits will be supplied upon request. There is no charge for a
copy of the Lukens Inc. 1996 Annual Report to stockholders. Other exhibits
will be provided at $.25 per page requested. Annual and quarterly filings
are electronically filed with the SEC. Copies of the exhibits are available
free of charge through the SEC site on the Internet
(http://www.sec.gov/cgi-bin/srch-edgar).
2. The certificate of incorporation is incorporated by reference to exhibits
included in the Lukens Inc. Post-Effective Amendment No. 1 to the
Registration Statement on Form S-8, File No. 33-23405. By-laws, as amended
and restated June 26, 1991, are incorporated by reference to exhibits
included in the Lukens Inc. Form 10-Q for the quarter ended June 29, 1991.
3. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-3, File No. 33-49112.
4. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 28, 1996.
5. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended March 30, 1996.
6. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1995.
7. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-Q
for the quarter ended September 30, 1995.
8. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 31, 1994.
9. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 25, 1993.
<PAGE>
10. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 26, 1992.
11. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 28, 1991.
12. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 29, 1990.
13. Incorporated by reference to exhibits included in the Lukens Inc. Form 10-K
for the fiscal year ended December 30, 1989.
14. Incorporated by reference to exhibits included in the Lukens Inc.
Registration Statement on Form S-4, File No. 33-10935.
15. Incorporated by reference to the section entitled "Consent of Independent
Public Accountants" in this Form 10-K.
<PAGE>
EXHIBIT 4.2
-----------
RIGHTS AGREEMENT
----------------
RIGHTS AGREEMENT, dated as of July 29, 1987, as amended as of July 25,
1990 (as so amended, the "Agreement"), between Lukens Inc., a Delaware
corporation (the "Company"), and Mellon Bank (East) N.A. (the "Rights Agent").
W I T N E S S E T H
- - - - - - - - - -
WHEREAS, on July 29, 1987 (the "Rights Dividend Declaration Date"),
the Board of Directors of the Company (the "Board") authorized and declared a
dividend distribution of one Right for each share of Common Stock (as
hereinafter defined) of the Company outstanding at the close of business on
August 10, 1987 (the "Record Date"), and has authorized the issuance of one
Right (as such number may be adjusted pursuant to the terms hereof) for each
share of Common Stock of the Company issued between the Record Date (whether
originally issued or delivered from the Company's treasury) and the earlier of
the Distribution Date or the Expiration Date (each as hereinafter defined) and,
to the extent provided in Section 22 hereof, with respect to certain shares
issued after the Distribution Date and prior to the Expiration Date, each Right
initially representing the right to purchase one one-hundredth of a share of
Series A Junior Participating Preferred Stock of the Company having the rights,
powers and preferences set forth in the form of resolutions attached hereto as
Exhibit A, upon the terms and subject to the conditions hereinafter set forth
(the "Rights"); and
WHEREAS, on July 27, 1988, the Board declared a fifty percent Common
Stock dividend resulting, after adjustment, in each share of Common Stock
representing two-thirds of a Right; and
WHEREAS, on July 25, 1990, the Board and the Rights Agent determined
to make certain amendments to the Agreement in accordance with Section 26 of the
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:
Section 1. Certain Definitions. For purposes of this Agreement, the
-------------------
following terms have the meanings indicated:
<PAGE>
(a) "Acquiring Person" shall mean any Person (as hereinafter defined)
who or which, together with all Affiliates and Associates of such Person, shall
be the Beneficial Owner of 20% or more of the shares of Common Stock then
outstanding, but shall not include (i) the Company, (ii) any Subsidiary of the
Company, (iii) any employee benefit plan of the Company or of any Subsidiary of
the Company, (iv) any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan or (v) any Person or
group of Persons (as determined pursuant to Section 13(d)(3) of the Exchange
Act) which was, as of the date of this Agreement, the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding.
(b) "Act" shall mean the Securities Act of 1933.
(c) "Adverse Person" shall mean any Person declared to be an Adverse
Person by the Board (with the concurrence of a majority of the Outside Directors
upon its determination that the criteria set forth in Section 11(a)(ii)(D)
hereof apply to such Person.
(d) "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Securities Exchange Act of 1934, as amended and in effect on the date of
this Agreement (the "Exchange Act").
(e) A Person shall be deemed the "Beneficial Owner" of, and shall be
deemed to "beneficially own," any securities:
(i) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to acquire (whether such
right is exercisable immediately or only after the passage of time)
pursuant to any agreement, arrangement or understanding (whether or not in
writing) or upon the exercise of conversion rights, exchange rights,
rights, warrants or options, or otherwise; provided, however, that a Person
--------
shall not be deemed the "Beneficial Owner" of, or to "beneficially own,"
(A) securities tendered pursuant to a tender or exchange offer made by such
Person or any of such Person's Affiliates or Associates until such tendered
securities are accepted for purchase or exchange, or (B) securi-
1
<PAGE>
ties issuable upon exercise of Rights at any time prior to the occurrence
of a Triggering Event, or (C) securities issuable upon exercise of Rights
from and after the occurrence of a Triggering Event which Rights were
acquired by such Person or any of such Person's Affiliates or Associates
prior to the Distribution Date or pursuant to Section 3(a) or Section 22
hereof (the "Original Rights") or pursuant to Section 11(i) hereof in
connection with an adjustment made with respect to any Original Rights;
(ii) which such Person or any of such Person's Affiliates or
Associates, directly or indirectly, has the right to vote or dispose of or
has "beneficial ownership" of (as determined pursuant to Rule 13d-3 of the
General Rules and Regulations under the Exchange Act), including pursuant
to any agreement, arrangement or understanding, whether or not in writing;
provided, however, that a Person shall not be deemed the "Beneficial Owner"
-------- -------
of, or to "beneficially own," any security under this subparagraph (ii) as
a result of an agreement, arrangement or understanding to vote such
security if such agreement, arrangement or understanding: (A) arises solely
from a revocable proxy given in response to a public proxy or consent
solicitation made pursuant to, and in accordance with, the applicable
provisions of the General Rules and Regulations under the Exchange Act, and
(B) is not also then reportable by such Person on Schedule 13D under the
Exchange Act (or any comparable or successor report); or
(iii) which are beneficially owned, directly or indirectly, by
any other Person (or any Affiliate or Associate thereof) with which such
Person (or any of such Person's Affiliates or Associates) has any
agreement, arrangement or understanding (whether or not in writing), for
the purpose of acquiring, holding, voting (except pursuant to a revocable
proxy as described in the proviso to subparagraph (ii) of this paragraph
(d)) or disposing of any voting securities of the Company; provided,
--------
however, that nothing in this paragraph (d) shall cause a person engaged in
-------
business as an underwriter of securities to be the "Beneficial Owner" of,
or to "beneficially own," any securities acquired through such person s
participation in good faith in a firm commitment underwriting until the
expiration of forty days after the date of such acquisition.
2
<PAGE>
(f) "Business Day" shall mean any day other than a Saturday,
Sunday or a day on which banking institutions in the Commonwealth of
Pennsylvania are authorized or obligated by law or executive order to close.
(g) "Close of business" on any given date shall mean 5:00 P.M.,
Philadelphia time, on such date; provided, however, that if such date is not a
-------- -------
Business Day it shall mean 5:00 P.M., Philadelphia time, on the next succeeding
Business Day.
(h) "Common Stock" shall mean the common stock, par value $0.01
per share, of the Company, except that "Common Stock" when used with reference
to any Person other than the Company shall mean the capital stock of such Person
with the greatest voting power, or the equity securities or other equity
interest having power to control or direct the management, of such Person.
(i) "Common stock equivalents" shall have the meaning set forth
in Section 11(a)(iii) hereof.
(j) "Current market price" shall have the meaning set forth in
Section 11(d)(i) hereof.
(k) "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.
(l) "Distribution Date" shall have the meaning set forth in
Section 3(a) hereof.
(m) "Exchange Act" shall have the meaning set forth in Section
1(d) hereof.
(n) "Expiration Date" shall have the meaning set forth in
Section 7(a) hereof.
(o) "Final Expiration Date" shall mean the close of business on
August 10, 1997.
(p) "Outside Director" shall have the meaning set forth in
Section 11(a)(ii)(B) hereof.
(q) "Person" shall mean any individual, firm, corporation,
partnership or other entity.
3
<PAGE>
(r) "Preferred Stock" shall mean shares of Series A Junior
Participating Preferred Stock, par value $0.01 per share, of the Company.
(s) "Principal Party" shall have the meaning set forth in
Section 13(b) hereof.
(t) "Purchase Price" shall have the meaning set forth in Section
4(a) hereof.
(u) "Redemption Price" shall have the meaning set forth in
Section 23(a) hereof.
(v) "Rights" shall have the meaning set forth in the WHEREAS
clause at the beginning of the Agreement.
(w) "Rights Certificates" shall have the meaning set forth in
Section 3(a) hereof.
(x) "Section 11(a)(ii) Event" shall mean any event described in
Section 11(a)(ii)(A), (B), (C) or (D) hereof.
(y) "Section 11(a)(ii) Trigger Date" shall have the meaning set
forth in Section 11(a)(iii) hereof.
(z) "Section 13 Event" shall mean any event described in clauses
(x), (y) or (z) of Section 13(a) hereof.
(aa) "Spread" shall have the meaning set forth in Section
11(a)(iii) hereof.
(bb) "Stock Acquisition Date" shall mean the first date of
public announcement (which, for purposes of this definition, shall include,
without limitation, a report filed pursuant to Section 13(d) of the Exchange
Act) by the Company or an Acquiring Person that an Acquiring Person has become
such.
(cc) "Subsidiary" shall mean, with reference to any Person, any
corporation of which an amount of voting securities sufficient to elect at least
a majority of the directors of such corporation is beneficially owned, directly
or indirectly, by such Person, or otherwise controlled by such Person.
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<PAGE>
(dd) "Substitution Period" shall have the meaning set forth in
Section 11(a)(iii) hereof.
(ee) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.
(ff) "Triggering Event" shall mean any Section 11(a)(ii) Event
or any Section 13 Event.
Section 2. Appointment of Rights Agent. The Company hereby appoints
---------------------------
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
also be the holders of the Common Stock) in accordance with the terms and
conditions hereof, and the Rights Agent hereby accepts such appointment. The
Company may from time to time appoint such Co-Rights Agents as it may deem
necessary or desirable.
Section 3. Issue of Rights Certificates.
----------------------------
(a) Until the earlier of (i) the close of business on the tenth day
after the Stock Acquisition Date (or, if the tenth day after the Stock
Acquisition Date occurs before the Record Date, the close of business on the
Record Date), (ii) the close of business on the tenth business day (or such
specified or unspecified later date as may be determined by the Board) after the
date that a tender or exchange offer by any Person (other than the Company, any
Subsidiary of the Company, any employee benefit plan of the Company or of any
Subsidiary of the Company, or any Person or entity organized, appointed or
established by the Company for or pursuant to the terms of any such plan) is
first published or sent or given within the meaning of Rule 14d-2(a) of the
General Rules and Regulations under the Exchange Act, if upon consummation
thereof, such Person would be the Beneficial Owner of 20% or more of the shares
of Common Stock then outstanding or (iii) immediately after the Board determines
(with the concurrence of the Outside Directors), pursuant to the criteria set
forth in Section 11(a)(ii)(D) hereof, that a Person is an Adverse Person, (the
earliest of (i), (ii) and (iii) being herein referred to as the "Distribution
Date"), (x) the Rights will be evidenced (subject to the provisions of paragraph
(b) of this Section 3) by the certificates for the Common Stock registered in
the names of the holders of the Common Stock (which certificates for Common
Stock shall be deemed also to be certificates for Rights) and not by separate
certificates, and (y) the Rights will be transferable only in connection
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<PAGE>
with the transfer of the underlying shares of Common Stock (including a transfer
to the Company). As soon as practicable after the Distribution Date, the Rights
Agent will send by first-class, insured, postage prepaid mail, to each record
holder of the Common Stock as of the close of business on the Distribution Date,
at the address of such holder shown on the records of the Company, one or more
rights certificates, in substantially the form of Exhibit B hereto (the "Rights
Certificates"), evidencing two-thirds of a Right for each share of Common Stock
so held, subject to adjustment as provided herein. In the event that an
adjustment in the number of Rights per share of Common Stock has been made
pursuant to Section 11(p) hereof, at the time of distribution of the Rights
Certificates, the Company shall make the necessary and appropriate rounding
adjustments (in accordance with Section 14(a) hereof) so that Rights
Certificates representing only whole numbers of Rights are distributed and cash
is paid in lieu of any fractional Rights. As of and after the Distribution Date,
the Rights will be evidenced solely by such Rights Certificates.
(b) As promptly as practicable following the Record Date, the Company
will send a copy of a Summary of Rights, in substantially the form as initially
attached hereto as Exhibit C (the "Summary of Rights"), by first-class, postage
prepaid mail, to each record holder of the Common Stock as of the close of
business on the Record Date, at the address of such holder then shown on the
records of the Company. The Summary of Rights attached hereto as Exhibit C is
revised to reflect the amendments effected as of July 25, 1990. With respect to
certificates for the Common Stock outstanding as of the Record Date, until the
Distribution Date, the Rights will be evidenced by such certificates for the
Common Stock and the registered holders of the Common Stock shall also be the
registered holders of the associated Rights. Until the earlier of the
Distribution Date or the Expiration Date (as such term is defined in Section 7
hereof), the transfer of any certificates representing shares of Common Stock in
respect of which Rights have been issued shall also constitute the transfer of
the Rights associated with such shares of Common Stock.
(c) Rights shall be issued in respect of all shares of Common Stock
which are issued after the Record Date but prior to the earlier of the
Distribution Date or the Expiration Date. Certificates representing such shares
6
<PAGE>
of Common Stock shall also be deemed to be certificates for Rights, and shall
bear the following legend:
This certificate also evidences and entitles the holder hereof to
certain Rights as set forth in the Rights Agreement between Lukens Inc.
(the "Company") and Mellon Bank (East) N.A. (the "Rights Agent") dated as
of July 29, 1987, as amended as of July 25, 1990 (as so amended, the
"Rights Agreement"), the terms of which are hereby incorporated herein by
reference and a copy of which is on file at the principal offices of the
Rights Agent. Under certain circumstances, as set forth in the Rights
Agreement, such Rights will be evidenced by separate certificates and will
no longer be evidenced by this certificate. The Rights Agent will mail to
the holder of this certificate a copy of the Rights Agreement, as in effect
on the date of mailing, without charge promptly after receipt of a written
request therefor. Under certain circumstances set forth in the Rights
Agreement, Rights issued to, or held by, any Person who is, was or becomes
an Acquiring Person, an Adverse Person or any Affiliate or Associate of an
Acquiring Person or an Adverse Person (as such terms are defined in the
Rights Agreement), whether currently held by or on behalf of such Person or
by any subsequent holder, may become null and void. The Rights shall not
be exercisable, and shall be void so long as held, by a holder in any
jurisdiction where the requisite qualification to the issuance to such
holder, or the exercise by such holder, of the Rights in such jurisdiction
shall not have been obtained or be obtainable.
With respect to such certificates containing the foregoing legend, until the
earlier of (i) the Distribution Date or (ii) the Expiration Date, the Rights
associated with the Common Stock represented by such certificates shall be
evidenced by such certificates alone and registered holders of Common Stock
shall also be the registered holders of the associated Rights, and the transfer
of any of such certificates shall also constitute the transfer of the Rights
associated with the Common Stock represented by such certificates.
Section 4. Form of Rights Certificates.
---------------------------
7
<PAGE>
(a) The Rights Certificates (and the forms of election to purchase
and of assignment to be printed on the reverse thereof) shall each be
substantially in the form set forth in Exhibit B hereto and may have such marks
of identification or designation and such legends, summaries or endorsements
printed thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
applicable law or with any rule or regulation made pursuant thereto or with any
rule or regulation of any stock exchange on which the Rights may from time to
time be listed, or to conform to usage. Subject to the provisions of Section 11
and Section 22 hereof, the Rights Certificates, whenever distributed, shall be
dated as of the Record Date and on their face shall entitle the holders thereof
to purchase such number of one one-hundredths of a share of Preferred Stock as
shall be set forth therein at the price per one one-hundredth of a share set
forth therein (such exercise price per one one-hundredth of a share, the
"Purchase Price"), but the amount and type of securities purchasable upon the
exercise of each Right and the Purchase Price thereof shall be subject to
adjustment as provided herein.
(b) Any Rights Certificate issued pursuant to Section 3(a) or Section
22 hereof that represents Rights beneficially owned by: (i) an Acquiring Person
or an Adverse Person or any Associate or Affiliate of an Acquiring Person or an
Adverse Person, (ii) a transferee of an Acquiring Person or an Adverse Person
(or of any Associate or Affiliate of an Acquiring Person or an Adverse Person)
who becomes a transferee after the Acquiring Person or Adverse Person becomes
such, or (iii) a transferee of an Acquiring Person or Adverse Person (or of any
Associate or Affiliate of an Acquiring Person or an Adverse Person) who becomes
a transferee prior to or concurrently with the Acquiring Person or Adverse
Person becoming such and receives such Rights pursuant to either (A) a transfer
(whether or not for consideration) from the Acquiring Person or Adverse Person
to holders of equity interests in such Acquiring Person or Adverse Person or to
any Person with whom such Acquiring Person or Adverse Person has any continuing
agreement, arrangement or understanding regarding the transferred Rights or (B)
a transfer which the Board has determined is part of a plan, arrangement or
understanding which has as a primary purpose or effect avoidance of Section 7(e)
hereof, and any Rights Certificate issued pursuant to Section 6 or Section 11
hereof upon transfer, exchange, replacement or adjustment of any other Rights
Certificate referred to in this sentence, shall contain (to the extent feasible)
the
8
<PAGE>
following legend modified as applicable to apply to such Person:
The Rights represented by this Rights Certificate are or were beneficially
owned by a Person who was or became an [Acquiring] [Adverse] Person or an
Affiliate or Associate of an [Acquiring] [Adverse] Person (as such terms
are defined in the Rights Agreement). Accordingly, this Rights Certificate
and the Rights represented hereby may become null and void in the
circumstances specified in Section 7(e) of such Agreement.
Section 5. Countersignature and Registration.
---------------------------------
(a) The Rights Certificates shall be executed on behalf of the
Company by its Chairman of the Board, its President or any Vice President,
either manually or by facsimile signature, and shall have affixed thereto the
Company's seal or a facsimile thereof which shall be attested by the Secretary
or an Assistant Secretary of the Company, either manually or by facsimile
signature. The Rights Certificates shall be manually countersigned by the
Rights Agent and shall not be valid for any purpose unless so countersigned. In
case any officer of the Company who shall have signed any of the Rights
Certificates shall cease to be such officer of the Company before
countersignature by the Rights Agent and issuance and delivery by the Company,
such Rights Certificates, nevertheless, may be countersigned by the Rights Agent
and issued and delivered by the Company with the same force and effect as though
the person who signed such Rights Certificates had not ceased to be such officer
of the Company; and any Rights Certificates may be signed on behalf of the
Company by any person who, at the actual date of the execution of such Rights
Certificate, shall be a proper officer of the Company to sign such Rights
Certificate, although at the date of the execution of this Rights Agreement any
such person was not such an officer.
(b) Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at its principal office or offices designated as the
appropriate place for surrender of Rights Certificates upon exercise or
transfer, books for registration and transfer of the Rights Certificates issued
hereunder. Such books shall show the names and addresses of the respective
holders of the Rights Certificates, the number of Rights evidenced on its face
by each of the Rights Certificates and the date of each of the Rights
Certificates.
9
<PAGE>
Section 6. Transfer, Split Up, Combination and Exchange of Rights
------------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Rights Certificates.
- ----------------------------------------------------------------------
(a) Subject to the provisions of Section 4(b), Section 7(e) and
Section 14 hereof, at any time after the close of business on the Distribution
Date, and at or prior to the close of business on the Expiration Date, any
Rights Certificate or Certificates may be transferred, split up, combined or
exchanged for another Rights Certificate or Certificates, entitling the
registered holder to purchase a like number of one one-hundredths of a share of
Preferred Stock (or, following a Triggering Event, Common Stock, other
securities, cash or other assets, as the case may be) as the Rights Certificate
or Certificates surrendered then entitled such holder (or former holder in the
case of a transfer) to purchase. Any registered holder desiring to transfer,
split up, combine or exchange any Rights Certificate or Certificates shall make
such request in writing delivered to the Rights Agent, and shall surrender the
Rights Certificate or Certificates to be transferred, split up, combined or
exchanged at the principal office or offices of the Rights Agent designated for
such purpose. Neither the Rights Agent nor the Company shall be obligated to
take any action whatsoever with respect to the transfer of any such surrendered
Rights Certificate until the registered holder shall have completed and signed
the certificate contained in the form of assignment on the reverse side of such
Rights Certificate and shall have provided such additional evidence of the
identity of the Beneficial Owner (or former Beneficial Owner) or Affiliates or
Associates thereof as the Company shall reasonably request. Thereupon the
Rights Agent shall, subject to Section 4(b), Section 7(e) and Section 14 hereof,
countersign and deliver to the Person entitled thereto a Rights Certificate or
Rights Certificates, as the case may be, as so requested. The Company may
require payment of a sum sufficient to cover any tax or governmental charge that
may be imposed in connection with any transfer, split up, combination or
exchange of Rights Certificates.
(b) Upon receipt by the Company and the Rights Agent of evidence
reasonably satisfactory to them of the loss, theft, destruction or mutilation of
a Rights Certificate, and, in case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to the Company
and the Rights Agent of all reasonable expenses incidental thereto, and upon
surrender
10
<PAGE>
to the Rights Agent and cancellation of the Rights Certificate if mutilated, the
Company will execute and deliver a new Rights Certificate of like tenor to the
Rights Agent for countersignature and delivery to the registered owner in lieu
of the Rights Certificate so lost, stolen, destroyed or mutilated.
Section 7. Exercise of Rights; Purchase Price; Expiration Date of
------------------------------------------------------
Rights.
- ------
(a) Subject to Section 7(e) hereof, the registered holder of any
Rights Certificate may exercise the Rights evidenced thereby (except as
otherwise provided herein, including, without limitation, the restrictions on
exercisability set forth in Section 9(c), Section 11(a)(iii) and Section 23(a)
hereof) in whole or in part at any time after the Distribution Date upon
surrender of the Rights Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly executed, to the Rights Agent
at the principal office or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate Purchase Price with respect to
the total number of one one-hundredths of a share of Preferred Stock (or other
shares, securities, cash or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to the earliest of (i) the
Final Expiration Date, (ii) the time at which the Rights are redeemed as
provided in Section 23 hereof or (iii) the time at which the Rights expire
pursuant to Section 13(d) hereof (the earliest of (i), (ii) and (iii) being
herein referred to as the "Expiration Date").
(b) The Purchase Price for each one one-hundredth of a share of
Preferred Stock pursuant to the exercise of a Right shall initially be $110, and
shall be subject to adjustment from time to time as provided in Sections 11 and
13(a) hereof and shall be payable in accordance with paragraph (c) below.
(c) Upon receipt of a Rights Certificate representing exercisable
Rights, with the form of election to purchase and the certificate duly executed,
accompanied by payment, with respect to each Right so exercised, of the Purchase
Price per one one-hundredth of a share of Preferred Stock (or other shares,
securities, cash or other assets, as the case may be) to be purchased as set
forth below and an amount equal to any applicable transfer tax, the Rights Agent
shall, subject to Section 20(k) hereof, thereupon promptly (i) (A) requisition
from any transfer agent of the
11
<PAGE>
shares of Preferred Stock (or make available, if the Rights Agent is the
transfer agent for such shares) certificates for the total number of one one-
hundredths of a share of Preferred Stock to be purchased and the Company hereby
irrevocably authorizes its transfer agent to comply with all such requests, or
(B) if the Company shall have elected to deposit the total number of shares of
Preferred Stock issuable upon exercise of the Rights hereunder with a depositary
agent, requisition from the depositary agent depositary receipts representing
such number of one one-hundredths of a share of Preferred Stock as are to be
purchased (in which case certificates for the shares of Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent) and the Company will direct the depositary agent to comply
with such request, (ii) requisition from the Company the amount of cash, if any,
to be paid in lieu of fractional shares in accordance with Section 14 hereof,
(iii) after receipt of such certificates or depositary receipts, cause the same
to be delivered to or upon the order of the registered holder of such Rights
Certificate, registered in such name or names as may be designated by such
holder, and (iv) after receipt thereof, deliver such cash, if any, to or upon
the order of the registered holder of such Rights Certificate. The payment of
the Purchase Price (as such amount may be reduced pursuant to Section 11(a)(iii)
hereof) shall be made in cash or by certified bank check or bank draft payable
to the order of the Company. In the event that the Company is obligated to issue
other securities (including Common Stock) of the Company, pay cash and/or
distribute other property pursuant to Section 11(a) hereof, the Company will
make all arrangements necessary so that such other securities, cash and/or other
property are available for distribution by the Rights Agent, if and when
appropriate. The Company reserves the right to require, prior to the occurrence
of a Triggering Event that, upon exercise of Rights, such number of Rights be
exercised so that only whole shares of Preferred Stock will be issued.
(d) In case the registered holder of any Rights Certificate shall
exercise less than all the Rights evidenced thereby, a new Rights Certificate
evidencing Rights equivalent to the Rights remaining unexercised shall be issued
by the Rights Agent and delivered to, or upon the order of, the registered
holder of such Rights Certificate, registered in such name or names as may be
designated by such holder, subject to the provisions of Section 14 hereof.
12
<PAGE>
(e) Notwithstanding anything in this Agreement to the contrary, from
and after the first occurrence of a Section 11(a)(ii) Event, any Rights
beneficially owned by (i) an Acquiring Person, an Adverse Person or an Associate
or Affiliate of an Acquiring Person or an Adverse Person, which the Board, in
its sole discretion, determines is or was involved in or caused or facilitated,
directly or indirectly (including through any change in the Board), such Section
11(a)(ii) Event, (ii) a transferee of such Acquiring Person or Adverse Person
(or of any Associate or Affiliate of an Acquiring Person or an Adverse Person)
who becomes a transferee after such Acquiring Person or Adverse Person becomes
such, or (iii) a transferee of such Acquiring Person or Adverse Person (or of
any Associate or Affiliate of an Acquiring Person or an Adverse Person) who
becomes a transferee prior to or concurrently with such Acquiring Person or
Adverse Person becoming such and receives such Rights pursuant to either (A) a
transfer (whether or not for consideration) from such Acquiring Person or
Adverse Person to holders of equity interests in such Acquiring Person or
Adverse Person or to any Person with whom such Acquiring Person or Adverse
Person has any continuing agreement, arrangement or understanding regarding the
transferred Rights or (B) a transfer which the Board has determined is part of a
plan, arrangement or understanding which has as a primary purpose or effect the
avoidance of this Section 7(e), shall become null and void without any further
action and no holder of such Rights shall have any rights whatsoever with
respect to such Rights, whether under any provision of this Agreement or
otherwise. The Company shall use all reasonable efforts to ensure that the
provisions of this Section 7(e) and Section 4(b) hereof are complied with, but
shall have no liability to any holder of Rights Certificates or other Person as
a result of its failure to make any determinations with respect to an Acquiring
Person or an Adverse Person or its Affiliates, Associates or transferees
hereunder.
(f) Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder upon the occurrence of any purported
exercise as set forth in this Section 7 unless such registered holder shall have
(i) completed and signed the certificate contained in the form of election to
purchase set forth on the reverse side of the Rights Certificate surrendered for
such exercise, and (ii) provided such additional evidence of the identity of the
Beneficial
13
<PAGE>
Owner (or former Beneficial Owner) or Affiliates or Associates thereof as the
Company shall reasonably request.
Section 8. Cancellation and Destruction of Rights Certificates. All
---------------------------------------------------
Rights Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or any of its
agents, be delivered to the Rights Agent for cancellation or in cancelled form,
or, if surrendered to the Rights Agent, shall be cancelled by it, and no Rights
Certificates shall be issued in lieu thereof except as expressly permitted by
any of the provisions of this Agreement. The Company shall deliver to the
Rights Agent for cancellation and retirement, and the Rights Agent shall so
cancel and retire, any other Rights Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall
deliver all cancelled Rights Certificates to the Company, or shall, at the
written request of the Company, destroy such cancelled Rights Certificates, and
in such case shall deliver a certificate of destruction thereof to the Company.
Section 9. Reservation and Availability of Capital Stock.
---------------------------------------------
(a) The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock (and, following the occurrence of a Triggering Event, out of its
authorized and unissued shares of Common Stock and/or other securities or out of
its authorized and issued shares held in its treasury), the number of shares of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) that, as provided in this Agreement including
Section 11(a)(iii) hereof, will be sufficient to permit the exercise in full of
all outstanding Rights.
(b) So long as the shares of Preferred Stock (and, following the
occurrence of a Triggering Event, Common Stock and/or other securities) issuable
and deliverable upon the exercise of the Rights may be listed on any national
securities exchange, the Company shall use its best efforts to cause, from and
after such time as the Rights become exercisable, all shares reserved for such
issuance to be listed on such exchange upon official notice of issuance upon
such exercise.
14
<PAGE>
(c) The Company shall use its best efforts to (i) file, as soon as
practicable following the earliest date after the first occurrence of a Section
11(a)(ii) Event on which the consideration to be delivered by the Company upon
exercise of the Rights has been determined in accordance with Section 11(a)(iii)
hereof, or as soon as is required by law following the Distribution Date, as the
case may be, a registration statement under the Act, with respect to the
securities purchasable upon exercise of the Rights on an appropriate form, (ii)
cause such registration statement to become effective as soon as practicable
after such filing, and (iii) cause such registration statement to remain
effective (with a prospectus at all times meeting the requirements of the Act)
until the earlier of (A) the date as of which the Rights are no longer
exercisable for such securities, and (B) the date of the expiration of the
Rights. The Company will also take such action as may be appropriate under, or
to ensure compliance with, the securities or "blue sky" laws of the various
states in connection with the exercisability of the Rights. The Company may
temporarily suspend, for a period of time not to exceed ninety (90) days after
the date set forth in clause (i) of the first sentence of this Section 9(c), the
exercisability of the Rights in order to prepare and file such registration
statement and permit it to become effective. Upon any such suspension, the
Company shall issue a public announcement stating that the exercisability of the
Rights has been temporarily suspended, as well as a public announcement at such
time as the suspension is no longer in effect. Notwithstanding any provision of
this Agreement to the contrary, the Rights shall not be exercisable in any
jurisdiction unless the requisite qualification in such jurisdiction shall have
been obtained.
(d) The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all one one-hundredths of a share of
Preferred Stock (and, following the occurrence of a Triggering Event, Common
Stock and/or other securities) delivered upon exercise of Rights shall, at the
time of delivery of the certificates for such shares (subject to payment of the
Purchase Price), be duly and validly authorized and issued and fully paid and
nonassessable.
(e) The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Rights Certificates
and of any certificates for a number of one
15
<PAGE>
one-hundredths of a share of Preferred Stock (or Common Stock and/or other
securities, as the case may be) upon the exercise of Rights. The Company shall
not, however, be required to pay any transfer tax which may be payable in
respect of any transfer or delivery of Rights Certificates to a Person other
than, or the issuance or delivery of a number of one one-hundredths of a share
of Preferred Stock (or Common Stock and/or other securities, as the case may be)
in respect of a name other than that of, the registered holder of the Rights
Certificates evidencing Rights surrendered for exercise or to issue or deliver
any certificates for a number of one one-hundredths of a share of Preferred
Stock (or Common Stock and/or other securities, as the case may be) in a name
other than that of the registered holder upon the exercise of any Rights until
such tax shall have been paid (any such tax being payable by the holder of such
Rights Certificate at the time of surrender) or until it has been established to
the Company's satisfaction that no such tax is due.
Section 10. Preferred Stock Record Date. Each person in whose name
---------------------------
any certificate for a number of one one-hundredths of a share of Preferred Stock
(or Common Stock and/or other securities, as the case may be) is issued upon the
exercise of Rights shall for all purposes be deemed to have become the holder of
record of such fractional shares of Preferred Stock (or Common Stock and/or
other securities, as the case may be) represented thereby on, and such
certificate shall be dated, the date upon which the Rights Certificate
evidencing such Rights was duly surrendered and payment of the Purchase Price
(and all applicable transfer taxes) was made; provided, however, that if the
-------- -------
date of such surrender and payment is a date upon which the Preferred Stock (or
Common Stock and/or other securities, as the case may be) transfer books of the
Company are closed, such Person shall be deemed to have become the record holder
of such shares (fractional or otherwise) on, and such certificate shall be
dated, the next succeeding Business Day on which the Preferred Stock (or Common
Stock and/or other securities, as the case may be) transfer books of the Company
are open. Prior to the exercise of the Rights evidenced thereby, the holder of
a Rights Certificate shall not be entitled to any rights of a stockholder of the
Company with respect to shares for which the Rights shall be exercisable,
including, without limitation, the right to vote, to receive dividends or other
distributions or to exercise any preemptive rights, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.
16
<PAGE>
Section 11. Adjustment of Purchase Price, Number and Kind of Shares
-------------------------------------------------------
or Number of Rights. The Purchase Price, the number and kind of shares covered
- -------------------
by each Right and the number of Rights outstanding are subject to adjustment
from time to time as provided in this Section 11.
(a)(i) In the event the Company shall at any time after the date
of this Agreement (A) declare a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock,
(C) combine the outstanding Preferred Stock into a smaller number of
shares, or (D) issue any shares of its capital stock in a reclassification
of the Preferred Stock (including any such reclassification in connection
with a consolidation or merger in which the Company is the continuing or
surviving corporation), except as otherwise provided in this Section 11(a)
and Section 7(e) hereof, the Purchase Price in effect at the time of the
record date for such dividend or of the effective date of such subdivision,
combination or reclassification, and the number and kind of shares of
Preferred Stock or capital stock, as the case may be, issuable on such
date, shall be proportionately adjusted so that the holder of any Right
exercised after such time shall be entitled to receive, upon payment of the
Purchase Price then in effect, the aggregate number and kind of shares of
Preferred Stock or capital stock, as the case may be, which, if such Right
had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, he would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification. If an event occurs
which would require an adjustment under both this Section 11(a)(i) and
Section 11(a)(ii) hereof, the adjustment provided for in this Section
11(a)(i) shall be in addition to, and shall be made prior to, any
adjustment required pursuant to Section 11(a)(ii) hereof.
(ii) In the event:
(A) any Acquiring Person or any Associate or Affiliate of any
Acquiring Person, at any time after the date of this Agreement, directly or
17
<PAGE>
indirectly, shall merge into the Company or otherwise combine with the
Company and the Company shall be the continuing or surviving corporation of
such merger or combination and the Common Stock of the Company shall remain
outstanding and unchanged,
(B) any Person (other than the Company, any Subsidiary of the
Company, any employee benefit plan of the Company or of any Subsidiary of
the Company, or any Person or entity organized, appointed or established by
the Company for or pursuant to the terms of any such plan), alone or
together with its Affiliates and Associates, shall, at any time after the
Rights Dividend Declaration Date, become the Beneficial Owner of 20% or
more of the shares of Common Stock then outstanding, unless the event
causing the 20% threshold to be crossed is a transaction set forth in
Section 13(a) hereof, or is an acquisition of shares of Common Stock
pursuant to a tender offer or an exchange offer for all outstanding shares
of Common Stock at a price and on terms determined by at least a majority
of the members of the Board who are not officers of the Company and who are
not representatives, nominees, Affiliates or Associates of an Acquiring
Person or an Adverse Person (the "Outside Directors"), after receiving
advice from one or more investment banking firms, to be (1) at a price that
is fair to stockholders (taking into account all factors which such members
of the Board deem relevant, including, without limitation, prices which
could reasonably be achieved if the Company or its assets were sold on an
orderly basis designed to realize maximum value) and (2) otherwise in the
best interests of the Company and its stockholders,
(C) during such time as there is an Acquiring Person, there
shall be any reclassification of securities (including any reverse stock
split), or recapitalization of the Company, or any merger or consolidation
of the Company with any of its Subsidiaries or any other transaction or
series of transactions involving the Company or any of its Subsidiaries,
other than a transaction or transactions to which the provisions of Section
13(a) apply (whether or not with or into or otherwise involving an
Acquiring Person) which has
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the effect, directly or indirectly, of increasing by more than 1% the
proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its Subsidiaries which is directly or
indirectly beneficially owned by any Acquiring Person or any Associate or
Affiliate of any Acquiring Person, or
(D) The Board (with the concurrence of a majority of the Outside
Directors) shall declare any Person to be an Adverse Person, upon a
determination that such person, alone or together with its Affiliates and
Associates, has, at any time after the Rights Dividend Declaration Date,
become the Beneficial Owner of an amount of Common Stock which the Board
(with the concurrence of a majority of the Outside Directors) determines to
be substantial (which amount shall in no event be less than 10% of the
shares of Common Stock then outstanding) and a determination by at least a
majority of the Board (with the concurrence of a majority of the Outside
Directors) after reasonable inquiry and investigation, which may include a
review of the public record regarding such Person and any information such
directors may request from such Person and consultation with such Persons
as such directors shall deem appropriate, that (1) such Beneficial
Ownership by such Person is intended to cause the Company to repurchase the
Common Stock beneficially owned by such Person or to cause pressure on the
Company to take action or enter into a transaction or series of
transactions intended to provide such Person with short-term financial gain
under circumstances where such directors determine that the best long-term
interests of the Company and its stockholders would not be served by taking
such action or entering into such transaction or series of transactions at
that time or (2) such Beneficial Ownership is causing or reasonably likely
to cause a material adverse impact (including, but not limited to,
impairment, of the Company's relationships with its customers, its ability
to maintain its competitive position, its business reputation or its
ability to deal with governmental agencies) on the business or prospects of
the Company.
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<PAGE>
then, promptly after the occurrence of such event, proper provision shall be
made so that each holder of a Right (except as provided below and in Section
7(e) hereof) shall thereafter have the right to receive, upon exercise thereof
at the then current Purchase Price in accordance with the terms of this
Agreement, in lieu of a number of one one-hundredths of a share of Preferred
Stock, such number of shares of Common Stock of the Company as shall equal the
result obtained by (x) multiplying the then current Purchase Price by the then
number of one one-hundredths of a share of Preferred Stock for which a Right was
exercisable immediately prior to the first occurrence of a Section 11(a)(ii)
Event, and (y) dividing that product (which, following such first occurrence,
shall thereafter be referred to as the "Purchase Price" for each Right and for
all purposes of this Agreement) by 50% of the current market price (determined
pursuant to Section 11(d) hereof) per share of Common Stock on the date of such
first occurrence (such number of shares being referred to as the "Adjustment
Shares").
(iii) In lieu of issuing shares of Common Stock in accordance
with Section 11(a)(ii) hereof, the Company, acting by resolution of the
Board, may and, in the event that the number of shares of Common Stock
which are authorized by the Company's Restated Certificate of
Incorporation, as amended from time to time, but not outstanding or
reserved for issuance for purposes other than upon exercise of the Rights
are not sufficient to permit the exercise in full of the Rights in
accordance with the foregoing subparagraph (ii) of this Section 11(a), the
Company, acting by resolution of the Board, shall: (A) determine the excess
of (1) the value of the Adjustment Shares issuable upon the exercise of a
Right (the "Current Value") over (2) the Purchase Price (such excess being
referred to as the "Spread"), and (B) with respect to each Right, make
adequate provision to substitute for the Adjustment Shares, upon payment of
the applicable Purchase Price, (1) cash, (2) a reduction in the Purchase
Price, (3) Common Stock or other equity securities of the Company
(including, without limitation, shares, or units of shares, of preferred
stock which the Board has deemed to have the same value as shares of Common
Stock (such shares of preferred stock being referred to as "common stock
equivalents")), (4) debt securities of the Company, (5) other assets, or
(6) any combination of the foregoing, having an aggregate value equal to
the Current Value, where such aggregate value has been determined by the
Board based upon the advice of a na-
20
<PAGE>
tionally recognized investment banking firm selected by the Board;
provided, however, if the Company shall not have made adequate provision to
-------- -------
deliver value pursuant to clause (B) above within thirty (30) days
following the later of (x) the first occurrence of a Section 11(a)(ii)
Event and (y) the date on which the Company's right of redemption pursuant
to Section 23(a) expires (the later of (x) and (y) being referred to herein
as the "Section 11(a)(ii) Trigger Date"), then the Company shall be
obligated to deliver, upon the surrender for exercise of a Right and
without requiring payment of the Purchase Price, shares of Common Stock (to
the extent available) and then, if necessary, cash, which shares and/or
cash have an aggregate value equal to the Spread. If the Board shall
determine in good faith that it is likely that sufficient additional shares
of Common Stock could be authorized for issuance upon exercise in full of
the Rights, the thirty (30) day period set forth above may be extended to
the extent necessary, but not more than ninety (90) days after the Section
11(a)(ii) Trigger Date, in order that the Company may seek stockholder
approval for the authorization of such additional shares (such period, as
it may be extended, the "Substitution Period"). To the extent that the
Company determines that some action need be taken pursuant to the first
and/or second sentences of this Section 11(a)(iii), the Company (x) shall
provide, subject to Section 7(e) hereof, that such action shall apply
uniformly to all outstanding Rights, and (y) may suspend the exercisability
of the Rights until the expiration of the Substitution Period in order to
seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such first sentence
and to determine the value thereof. In the event of any such suspension,
the Company shall issue a public announcement stating that the
exercisability of the Rights has been temporarily suspended, as well as a
public announcement at such time as the suspension is no longer in effect.
For purposes of this Section 11(a)(iii), the value of the Common Stock
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of the Common Stock on the Section 11(a)(ii) Trigger Date
and the value of any "common stock equivalent" shall be deemed to have the
same value as the Common Stock on such date.
(b) In case the Company shall fix a record date for the issuance of
rights, options or warrants to all
21
<PAGE>
holders of Preferred Stock entitling them to subscribe for or purchase (for a
period expiring within forty-five (45) calendar days after such record date)
Preferred Stock (or shares having the same rights, privileges and preferences as
the shares of Preferred Stock ("equivalent preferred stock")) or securities
convertible into Preferred Stock or equivalent preferred stock at a price per
share of Preferred Stock or per share of equivalent preferred stock (or having a
conversion price per share, if a security convertible into Preferred Stock or
equivalent preferred stock) less than the current market price (as determined
pursuant to Section 11(d) hereof) per share of Preferred Stock on such record
date, the Purchase Price to be in effect after such record date shall be
determined by multiplying the Purchase Price in effect immediately prior to such
record date by a fraction, the numerator of which shall be the number of shares
of Preferred Stock outstanding on such record date, plus the number of shares of
Preferred Stock which the aggregate offering price of the total number of shares
of Preferred Stock and/or equivalent preferred stock so to be offered (and/or
the aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price, and the denominator of
which shall be the number of shares of Preferred Stock outstanding on such
record date, plus the number of additional shares of Preferred Stock and/or
equivalent preferred stock to be offered for subscription or purchase (or into
which the convertible securities so to be offered are initially convertible). In
case such subscription price may be paid by delivery of consideration part or
all of which may be in a form other than cash, the value of such consideration
shall be as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent and shall be binding on the
Rights Agent and the holders of the Rights. Shares of Preferred Stock owned by
or held for the account of the Company shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made successively
whenever such a record date is fixed, and in the event that such rights or
warrants are not so issued, the Purchase Price shall be adjusted to be the
Purchase Price which would then be in effect if such record date had not been
fixed.
(c) In case the Company shall fix a record date for a distribution to
all holders of Preferred Stock (including any such distribution made in
connection with a consolidation or merger in which the Company is the continuing
corporation) of evidences of indebtedness, cash (other than a regular quarterly
cash dividend out of the
22
<PAGE>
earnings or retained earnings of the Company), assets (other than a dividend
payable in Preferred Stock, but including any dividend payable in stock other
than Preferred Stock) or subscription rights or warrants (excluding those
referred to in Section 11(b) hereof), the Purchase Price to be in effect after
such record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the current market price (as determined pursuant to Section 11(d)
hereof) per share of Preferred Stock on such record date, less the fair market
value (as determined in good faith by the Board, whose determination shall be
described in a statement filed with the Rights Agent) of the portion of the
cash, assets or evidences of indebtedness so to be distributed or of such
subscription rights or warrants applicable to a share of Preferred Stock and the
denominator of which shall be such current market price (as determined pursuant
to Section 11(d) hereof) per share of Preferred Stock. Such adjustments shall be
made successively whenever such a record date is fixed, and in the event that
such distribution is not so made, the Purchase Price shall be adjusted to be the
Purchase Price which would have been in effect if such record date had not been
fixed.
(d)(i) For the purpose of any computation hereunder, other than
computations made pursuant to Section 11(a)(iii) hereof, the "current
market price" per share of Common Stock on any date shall be deemed to be
the average of the daily closing prices per share of such Common Stock for
the thirty (30) consecutive Trading Days (as such term is hereinafter
defined) immediately prior to such date, and for purposes of computations
made pursuant to Section 11(a)(iii) hereof, the "current market price" per
share of Common Stock on any date shall be deemed to be the average of the
daily closing prices per share of such Common Stock for the ten (10)
consecutive Trading Days immediately following such date; provided,
--------
however, that in the event that the current market price per share of the
-------
Common Stock is determined during a period following the announcement by
the issuer of such Common Stock of (A) a dividend or distribution on such
Common Stock payable in shares of such Common Stock or securities
convertible into shares of such Common Stock (other than the Rights), or
(B) any subdivision, combination or reclassification of such Common Stock,
and prior to the expiration of the requisite thirty (30) Trading Day or ten
(10) Trading Day period, as set forth above, after the ex-dividend date for
such dividend or
23
<PAGE>
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "current market price"
shall be properly adjusted to take into account ex-dividend trading. The
closing price for each day shall be the last sale price, regular way, or,
in case no such sale takes place on such day, the average of the closing
bid and asked prices, regular way, in either case as reported in the
principal consolidated transaction reporting system with respect to
securities listed or admitted to trading on the New York Stock Exchange or,
if the shares of Common Stock are not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated
transaction reporting system with respect to securities listed on the
principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading or, if the shares of Common Stock are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low
asked prices in the over-the-counter market, as reported by the National
Association of Securities Dealers, Inc. Automated Quotation System
("NASDAQ") or such other system then in use, or, if on any such date the
shares of Common Stock are not quoted by any such organization, the average
of the closing bid and asked prices as furnished by a professional market
maker making a market in the Common Stock selected by the Board. If on any
such date no market maker is making a market in the Common Stock, the fair
value of such shares on such date as determined in good faith by the Board
shall be used. The term "Trading Day" shall mean a day on which the
principal national securities exchange on which the shares of Common Stock
are listed or admitted to trading is open for the transaction of business
or, if the shares of Common Stock are not listed or admitted to trading on
any national securities exchange, a Business Day. If the Common Stock is
not publicly held or not so listed or traded, "current market price" per
share shall mean the fair value per share as determined in good faith by
the Board, whose determination shall be described in a statement filed with
the Rights Agent and shall be conclusive for all purposes.
(ii) For the purpose of any computation hereunder, the "current
market price" per share of Preferred Stock shall be determined in the same
manner as set forth above for the Common Stock in clause (i) of
24
<PAGE>
this Section 11(d) (other than the last sentence thereof). If the current
market price per share of Preferred Stock cannot be determined in the
manner provided above or if the Preferred Stock is not publicly held or
listed or traded in a manner described in clause (i) of this Section 11(d),
the "current market price" per share of Preferred Stock shall be
conclusively deemed to be an amount equal to 100 (as such number may be
appropriately adjusted for such events as stock splits, stock dividends and
recapitalizations with respect to the Common Stock occurring after the date
of this Agreement) multiplied by the current market price per share of the
Common Stock. If neither the Common Stock nor the Preferred Stock is
publicly held or so listed or traded, "current market price" per share of
the Preferred Stock shall mean the fair value per share as determined in
good faith by the Board, whose determination shall be described in a
statement filed with the Rights Agent and shall be conclusive for all
purposes. For all purposes of this Agreement, the "current market price" of
one one-hundredth of a share of Preferred Stock shall be equal to the
"current market price" of one share of Preferred Stock divided by 100.
(e) Anything herein to the contrary notwithstanding, no adjustment in
the Purchase Price shall be required unless such adjustment would require an
increase or decrease of at least one percent (1%) in the Purchase Price;
provided, however, that any adjustments which by reason of this Section 11(e)
- -------- -------
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 11 shall be made
to the nearest cent or to the nearest ten-thousandth of a share of Common Stock
or other share or one-millionth of a share of Preferred Stock, as the case may
be. Notwithstanding the first sentence of this Section 11(e), any adjustment
required by this Section 11 shall be made no later than the earlier of (i) three
(3) years from the date of the transaction which mandates such adjustment, or
(ii) the Expiration Date.
(f) If as a result of an adjustment made pursuant to Section
11(a)(ii) or Section 13(a) hereof, the holder of any Right thereafter exercised
shall become entitled to receive any shares of capital stock other than
Preferred Stock, thereafter the number of such other shares so receivable upon
exercise of any Right and the Purchase Price thereof shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
25
<PAGE>
practicable to the provisions with respect to the Preferred Stock contained in
Sections 11(a), (b), (c), (e), (g), (h), (i), (j), (k) and (m), and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.
(g) All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one onehundredths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.
(h) Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and (c), each Right outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Purchase Price, that number of one one-hundredths of a
share of Preferred Stock (calculated to the nearest one-millionth) obtained by
(i) multiplying (x) the number of one one-hundredths of a share covered by a
Right immediately prior to this adjustment, by (y) the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price, and (ii) dividing
the product so obtained by the Purchase Price in effect immediately after such
adjustment of the Purchase Price.
(i) The Company may elect on or after the date of any adjustment of
the Purchase Price to adjust the number of Rights, in lieu of any adjustment in
the number of one one-hundredths of a share of Preferred Stock purchasable upon
the exercise of a Right. Each of the Rights outstanding after the adjustment in
the number of Rights shall be exercisable for the number of one one-hundredths
of a share of Preferred Stock for which a Right was exercisable immediately
prior to such adjustment. Each Right held of record prior to such adjustment of
the number of Rights shall become that number of Rights (calculated to the
nearest one-ten-thousandth) obtained by dividing the Purchase Price in effect
immediately prior to adjustment of the Purchase Price by the Purchase Price in
effect immediately after adjustment of the Purchase Price. The Company shall
make a public announcement of its election to adjust the number of Rights,
indicating the record date for the adjustment, and, if known at the time, the
amount of the adjustment to be made. This record date may be the date on
26
<PAGE>
which the Purchase Price is adjusted or any day thereafter, but, if the Rights
Certificates have been issued, shall be at least ten (10) days later than the
date of the public announcement. If Rights Certificates have been issued, upon
each adjustment of the number of Rights pursuant to this Section 11(i), the
Company shall, as promptly as practicable, cause to be distributed to holders of
record of Rights Certificates on such record date Rights Certificates
evidencing, subject to Section 14 hereof, the additional Rights to which such
holders shall be entitled as a result of such adjustment, or, at the option of
the Company, shall cause to be distributed to such holders of record in
substitution and replacement for the Rights Certificates held by such holders
prior to the date of adjustment, and upon surrender thereof, if required by the
Company, new Rights Certificates evidencing all the Rights to which such holders
shall be entitled after such adjustment. Rights Certificates so to be
distributed shall be issued, executed and countersigned in the manner provided
for herein (and may bear, at the option of the Company, the adjusted Purchase
Price) and shall be registered in the names of the holders of record of Rights
Certificates on the record date specified in the public announcement.
(j) Irrespective of any adjustment or change in the Purchase Price or
the number of one one-hundredths of a share of Preferred Stock issuable upon the
exercise of the Rights, the Rights Certificates theretofore and thereafter
issued may continue to express the Purchase Price per one one-hundredth of a
share and the number of one one-hundredths of a share which were expressed in
the initial Rights Certificates issued hereunder.
(k) Before taking any action that would cause an adjustment reducing
the Purchase Price below the then stated value, if any, of the number of one
one-hundredths of a share of Preferred Stock issuable upon exercise of the
Rights, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable such number of one one-hundredths of a share
of Preferred Stock at such adjusted Purchase Price.
(l) In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuance to the holder of any Right exercised
27
<PAGE>
after such record date the number of one one-hundredths of a share of Preferred
Stock and other capital stock or securities of the Company, if any, issuable
upon such exercise over and above the number of one one-hundredths of a share of
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise on the basis of the Purchase Price in effect prior
to such adjustment; provided, however, that the Company shall deliver to such
-------- -------
holder a due bill or other appropriate instrument evidencing such holder's right
to receive such additional shares (fractional or otherwise) or securities upon
the occurrence of the event requiring such adjustment.
(m) Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such reductions in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that in its good faith judgment the Board shall determine to be
advisable in order that any (i) consolidation or subdivision of the Preferred
Stock, (ii) issuance wholly for cash of any shares of Preferred Stock at less
than the current market price, (iii) issuance wholly for cash of shares of
Preferred Stock or securities which by their terms are convertible into or
exchangeable for shares of Preferred Stock, (iv) stock dividends or (v) issuance
of rights, options or warrants referred to in this Section 11, hereafter made by
the Company to holders of its Preferred Stock shall not be taxable to such
stockholders.
(n) The Company covenants and agrees that it shall not, at any time
after the Distribution Date, (i) consolidate with any other Person (other than a
Subsidiary of the Company in a transaction which complies with Section 11(o)
hereof), (ii) merge with or into any other Person (other than a Subsidiary of
the Company in a transaction which complies with Section 11(o) hereof), or (iii)
sell or transfer (or permit any Subsidiary to sell or transfer), in one
transaction, or a series of related transactions, assets, cash flow or earning
power aggregating more than 50% of the assets, cash flow or earning power of the
Company and its Subsidiaries (taken as a whole) to any other Person or Persons
(other than the Company and/or any of its Subsidiaries in one or more
transactions each of which complies with Section 11(o) hereof), if (x) at the
time of or immediately after such consolidation, merger or sale there are any
rights, warrants or other instruments or securities outstanding or agreements in
effect which would substantially diminish or otherwise eliminate the benefits
intended to be afforded by the Rights or (y) prior to,
28
<PAGE>
simultaneously with or immediately after such consolidation, merger or sale, the
stockholders of the Person who constitutes, or would constitute, the "Principal
Party" for purposes of Section 13(a) hereof shall have received a distribution
of Rights previously owned by such Person or any of its Affiliates and
Associates.
(o) The Company covenants and agrees that, after the Distribution
Date, it will not, except as permitted by Section 23 or Section 26 hereof, take
(or permit any Subsidiary to take) any action if at the time such action is
taken it is reasonably foreseeable that such action will diminish substantially
or otherwise eliminate the benefits intended to be afforded by the Rights.
(p) Anything in this Agreement to the contrary notwithstanding, in
the event that the Company shall at any time after the Rights Dividend
Declaration Date and prior to the Distribution Date (i) declare a dividend on
the outstanding shares of Common Stock payable in shares of Common Stock, (ii)
subdivide the out-standing shares of Common Stock, or (iii) combine the
outstanding shares of Common Stock into a smaller number of shares, the number
of Rights associated with each share of Common Stock then outstanding, or issued
or delivered thereafter but prior to the Distribution Date, shall be
proportionately adjusted so that the number of Rights thereafter associated with
each share of Common Stock following any such event shall equal the result
obtained by multiplying the number of Rights associated with each share of
Common Stock immediately prior to such event by a fraction the numerator of
which shall be the total number of shares of Common Stock outstanding
immediately prior to the occurrence of the event and the denominator of which
shall be the total number of shares of Common Stock outstanding immediately
following the occurrence of such event.
(q) The failure by the Board (with the concurrence of a majority of
the Outside Directors) to declare a Person to be an Adverse Person following
such Person becoming the Beneficial Owner of 10% or more of the outstanding
Common Stock shall not imply that such Person is not an Adverse Person or limit
the right of the Board (with the concurrence of a majority of the Outside
Directors) at any time in the future to declare such Person to be an Adverse
Person.
Section 12. Certificate of Adjusted Purchase Price or Number of
---------------------------------------------------
Shares. Whenever an adjustment is made
- ------
29
<PAGE>
as provided in Section 11 and Section 13 hereof, the Company shall (a) promptly
prepare a certificate setting forth such adjustment and a brief statement of the
facts accounting for such adjustment, (b) promptly file with the Rights Agent,
and with each transfer agent for the Preferred Stock and the Common Stock, a
copy of such certificate, and (c) mail a brief summary thereof to each holder of
a Rights Certificate (or, if prior to the Distribution Date, to each holder of a
certificate representing shares of Common Stock) in accordance with Section 25
hereof. The Rights Agent shall be fully protected in relying on any such
certificate and on any adjustment therein contained.
Section 13. Consolidation, Merger or Sale or Transfer of Assets or
------------------------------------------------------
Earning Power.
- -------------
(a) In the event that, following the Stock Acquisition Date, directly
or indirectly, (x) the Company shall consolidate with, or merge with and into,
any other Person (other than a Subsidiary of the Company in a transaction which
complies with Section 11(o) here-of), and the Company shall not be the
continuing or surviving corporation of such consolidation or merger, (y) any
Person (other than a Subsidiary of the Company in a transaction which complies
with Section 11(o) hereof) shall consolidate with, or merge with or into, the
Company, and the Company shall be the continuing or surviving corporation of
such consolidation or merger and, in connection with such consolidation or
merger, all or part of the outstanding shares of Common Stock shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (z) the Company shall sell or otherwise transfer (or one
or more of its Subsidiaries shall sell or otherwise transfer), in one
transaction or a series of related transactions, assets, cash flow or earning
power aggregating more than 50% of the assets, cash flow or earning power of the
Company and its Subsidiaries (taken as a whole) to any Person or Persons (other
than the Company or any Subsidiary of the Company in one or more transactions
each of which complies with Section 11(o) hereof), then, and in each such case
(except as may be contemplated by Section 13(d) hereof), proper provision shall
be made so that: (i) each holder of a Right, except as provided in Section 7(e)
hereof, shall thereafter have the right to receive, upon the exercise thereof at
the then current Purchase Price in accordance with the terms of this Agreement,
such number of validly authorized and issued, fully paid, nonassessable and
freely tradeable shares of Common Stock of the Principal Party (as such term is
hereinafter defined), not subject to
30
<PAGE>
any liens, encumbrances, rights of first refusal or other adverse claims, as
shall be equal to the result obtained by (1) multiplying the then current
Purchase Price by the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable immediately prior to the first occurrence of a
Section 13 Event (or, if a Section 11(a)(ii) Event has occurred prior to the
first occurrence of a Section 13 Event, multiplying the number of such one one-
hundredths of a share for which a Right was exercisable immediately prior to the
first occurrence of a Section 11(a)(ii) Event by the Purchase Price in effect
immediately prior to such first occurrence), and dividing that product (which,
following the first occurrence of a Section 13 Event, shall be referred to as
the "Purchase Price" for each Right and for all purposes of this Agreement) by
(2) 50% of the current market price (determined pursuant to Section 11(d)(i)
hereof) per share of the Common Stock of such Principal Party on the date of
consummation of such Section 13 Event; (ii) such Principal Party shall
thereafter be liable for, and shall assume, by virtue of such Section 13 Event,
all the obligations and duties of the Company pursuant to this Agreement; (iii)
the term "Company" shall thereafter be deemed to refer to such Principal Party,
it being specifically intended that the provisions of Section 11 hereof shall
apply only to such Principal Party following the first occurrence of a Section
13 Event; (iv) such Principal Party shall take such steps (including, but not
limited to, the reservation of a sufficient number of shares of its Common
Stock) in connection with the consummation of any such transaction as may be
necessary to assure that the provisions hereof shall thereafter be applicable,
as nearly as reasonably may be, in relation to its shares of Common Stock
thereafter deliverable upon the exercise of the Rights; and (v) the provisions
of Section 11(a)(ii) hereof shall be of no effect following the first occurrence
of any Section 13 Event.
(b) "Principal Party" shall mean
(i) in the case of any transaction described in clause (x) or
(y) of the first sentence of Section 13(a), the Person that is the issuer
of any securities into which shares of Common Stock of the Company are
converted in such merger or consolidation, and if no securities are so
issued, the Person that is the other party to such merger or consolidation;
and
(ii) in the case of any transaction described in clause (z) of
the first sentence of Section
31
<PAGE>
13(a), the Person that is the party receiving the greatest portion of the
assets or earning power transferred pursuant to such transaction or
transactions;
provided, however, that in any such case, (1) if the Common Stock of such Person
- -------- -------
is not at such time and has not been continuously over the preceding twelve (12)
month period registered under Section 12 of the Exchange Act, and such Person is
a direct or indirect Subsidiary of another Person the Common Stock of which is
and has been so registered, "Principal Party" shall refer to such other Person;
and (2) in case such Person is a Subsidiary, directly or indirectly, of more
than one Person, the Common Stocks of two or more of which are and have been so
registered, "Principal Party" shall refer to whichever of such Persons is the
issuer of the Common Stock having the greatest aggregate market value.
(c) The Company shall not consummate any such consolidation, merger,
sale or transfer unless the Principal Party shall have a sufficient number of
authorized shares of its Common Stock which have not been issued or reserved for
issuance to permit the exercise in full of the Rights in accordance with this
Section 13 and unless prior thereto the Company and such Principal Party shall
have executed and delivered to the Rights Agent a supplemental agreement
providing for the terms set forth in paragraphs (a) and (b) of this Section 13
and further providing that, as soon as practicable after the date of any
consolidation, merger or sale of assets mentioned in paragraph (a) of this
Section 13, the Principal Party will
(i) prepare and file a registration statement under the Act,
with respect to the Rights and the securities purchasable upon exercise of
the Rights on an appropriate form, and will use its best efforts to cause
such registration statement to (A) become effective as soon as practicable
after such filing and (B) remain effective (with a prospectus at all times
meeting the requirements of the Act) until the Expiration Date; and
(ii) will deliver to holders of the Rights historical financial
statements for the Principal Party and each of its Affiliates which comply
in all respects with the requirements for registration on Form 10 under the
Exchange Act.
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The provisions of this Section 13 shall similarly apply to successive mergers or
consolidations or sales or other transfers. In the event that a Section 13 Event
shall occur at any time after the occurrence of a Section 11(a)(ii) Event, the
Rights which have not theretofore been exercised shall thereafter become
exercisable in the manner described in Section 13(a).
(d) Notwithstanding anything in this Agreement to the contrary, this
Section 13 shall not be applicable to a transaction described in subparagraphs
(x) and (y) of Section 13(a) hereof if (i) such transaction is consummated with
a Person or Persons who acquired shares of Common Stock pursuant to a tender
offer or an exchange offer for all outstanding shares of Common Stock which
complies with the provisions of Section 11(a)(ii)(B) hereof (or a wholly owned
subsidiary of such Person or Persons), (ii) the price per share of Common Stock
offered in such transaction is not less than the price per share of Common Stock
paid to all holders of shares of Common Stock whose shares were purchased
pursuant to such offer and (iii) the form of consideration being offered to the
remaining holders of shares of Common Stock pursuant to such transaction is the
same as the form of consideration paid pursuant to such offer. Upon
consummation of any such transaction contemplated by this Section 13(d), all
Rights hereunder shall expire.
Section 14. Fractional Rights and Fractional Shares.
---------------------------------------
(a) The Company shall not be required to issue fractions of Rights,
except prior to the Distribution Date as provided in Section 11(p) hereof, or to
distribute Rights Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Rights Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For purposes of this Section 14(a), the current market
value of a whole Right shall be the closing price of the Rights for the Trading
Day immediately prior to the date on which such fractional Rights would have
been otherwise issuable. The closing price of the Rights for any day shall be
the last sale price, regular way, or, in case no such sale takes place on such
day, the average of the closing bid and asked prices, regular way, in either
case as reported in the principal consolidated transaction reporting system with
respect to
33
<PAGE>
securities listed or admitted to trading on the New York Stock Exchange or, if
the Rights are not listed or admitted to trading on the New York Stock Exchange,
as reported in the principal consolidated transaction reporting system with
respect to securities listed on the principal national securities exchange on
which the Rights are listed or admitted to trading, or if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board.
If on any such date no such market maker is making a market in the Rights the
fair value of the Rights on such date as determined in good faith by the Board
shall be used.
(b) The Company shall not be required to issue fractions of shares of
Preferred Stock (other than fractions which are integral multiples of one one-
hundredth of a share of Preferred Stock) upon exercise of the Rights or to
distribute certificates which evidence fractional shares of Preferred Stock
(other than fractions which are integral multiples of one one-hundredth of a
share of Preferred Stock). In lieu of fractional shares of Preferred Stock that
are not integral multiples of one one-hundredth of a share of Preferred Stock,
the Company may pay to the registered holders of Rights Certificates at the time
such Rights are exercised as herein provided an amount in cash equal to the same
fraction of the current market value of one one-hundredth of a share of
Preferred Stock. For purposes of this Section 14(b), the current market value
of one one-hundredth of a share of Preferred Stock shall be one one-hundredth of
the closing price of a share of Preferred Stock (as determined pursuant to
Section 11(d)(ii) hereof) for the Trading Day immediately prior to the date of
such exercise.
(c) Following the occurrence of a Triggering Event, the Company shall
not be required to issue fractions of shares of Common Stock upon exercise of
the Rights or to distribute certificates which evidence fractional shares of
Common Stock. In lieu of fractional shares of Common Stock, the Company may pay
to the registered holders of Rights Certificates at the time such Rights are
exercised as herein provided an amount in cash equal to the same fraction of the
current market value of one (1) share of Common Stock. For
34
<PAGE>
purposes of this Section 14(c), the current market value of one share of Common
Stock shall be the closing price of one share of Common Stock (as determined
pursuant to Section 11(d)(i) hereof) for the Trading Day immediately prior to
the date of such exercise.
(d) The holder of a Right by the acceptance of the Rights expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise of a Right, except as permitted by this Section 14.
Section 15. Rights of Action. All rights of action in respect of
----------------
this Agreement are vested in the respective registered holders of the Rights
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Rights Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Rights Certificate (or, prior to the
Distribution Date, of the Common Stock), may, in his own behalf and for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company to enforce, or otherwise act in respect of, his right to
exercise the Rights evidenced by such Rights Certificate in the manner provided
in such Rights Certificate and in this Agreement. Without limiting the foregoing
or any remedies available to the holders of Rights, it is specifically
acknowledged that the holders of Rights would not have an adequate remedy at law
for any breach of this Agreement and shall be entitled to specific performance
of the obligations hereunder and injunctive relief against actual or threatened
violations of the obligations hereunder of any Person subject to this Agreement.
Section 16. Agreement of Rights Holders. Every holder of a Right by
---------------------------
accepting the same consents and agrees with the Company and the Rights Agent and
with every other holder of a Right that:
(a) prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of Common Stock;
(b) after the Distribution Date, the Rights Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the principal office or offices of the Rights Agent designated for such
purposes, duly endorsed or accompanied by a proper instrument of
35
<PAGE>
transfer and with the appropriate forms and certificates fully executed;
(c) subject to Section 6(a) and Section 7(f) hereof, the Company and
the Rights Agent may deem and treat the person in whose name a Rights
Certificate (or, prior to the Distribution Date, the associated Common Stock
certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Rights Certificates or the associated Common Stock certificate made by anyone
other than the Company or the Rights Agent) for all purposes whatsoever, and
neither the Company nor the Rights Agent, subject to the last sentence of
Section 7(e) hereof, shall be required to be affected by any notice to the
contrary; and
(d) notwithstanding anything in this Agreement to the contrary,
neither the Company nor the Rights Agent shall have any liability to any holder
of a Right or other Person as a result of its inability to perform any of its
obligations under this Agreement by reason of any preliminary or permanent
injunction or other order, decree or ruling issued by a court of competent
jurisdiction or by a governmental, regulatory or administrative agency or
commission, or any statute, rule, regulation or executive order promulgated or
enacted by any governmental authority, prohibiting or otherwise restraining
performance of such obligation; provided, however, the Company must use its best
-------- -------
efforts to have any such order, decree or ruling lifted or otherwise overturned
as soon as possible.
Section 17. Rights Certificate Holder Not Deemed a Stockholder. No
--------------------------------------------------
holder, as such, of any Rights Certificate shall be entitled to vote, receive
dividends or be deemed for any purpose the holder of the number of one one-
hundredths of a share of Preferred Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Rights represented
there-by, nor shall anything contained herein or in any Rights Certificate be
construed to confer upon the holder of any Rights Certificate, as such, any of
the rights of a stockholder of the Company or any right to vote for the election
of directors or upon any matter submitted to stockholders at any meeting
thereof, or to give or withhold consent to any corporate action, or to receive
notice of meetings or other actions affecting stockholders (except as provided
in Section 24 hereof), or to receive dividends or subscription rights, or
otherwise, until the Right or Rights evidenced by
36
<PAGE>
such Rights Certificate shall have been exercised in accordance with the
provisions hereof.
Section 18. Concerning the Rights Agent.
---------------------------
(a) The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
disbursements and other disbursements incurred in the administration and
execution of this Agreement and the exercise and performance of its duties
hereunder. The Company also agrees to indemnify the Rights Agent for, and to
hold it harmless against, any loss, liability, or expense, incurred without
negligence, bad faith or willful misconduct on the part of the Rights Agent, for
anything done or omitted by the Rights Agent in connection with the acceptance
and administration of this Agreement, including the costs and expenses of
defending against any claim of liability in the premises.
(b) The Rights Agent shall be protected and shall incur no liability
for or in respect of any action taken, suffered or omitted by it in connection
with its administration of this Agreement in reliance upon any Rights
Certificate or certificate for Common Stock or for other securities of the
Company, instrument of assignment or transfer, power of attorney, endorsement,
affidavit, letter, notice, direction, consent, certificate, statement, or other
paper or document believed by it to be genuine and to be signed, executed and,
where necessary, verified or acknowledged, by the proper Person or Persons.
Section 19. Merger or Consolidation or Change of Name of Rights
---------------------------------------------------
Agent.
- -----
(a) Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the corporate trust or stock transfer business of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, however, that such corporation
-------- -------
would be eligible for appointment as a successor Rights Agent under the
provisions of Section 21 hereof. In case at the time
37
<PAGE>
such successor Rights Agent shall succeed to the agency created by this
Agreement, any of the Rights Certificates shall have been countersigned but not
delivered, any such successor Rights Agent may adopt the countersignature of a
predecessor Rights Agent and deliver such Rights Certificates so countersigned;
and in case at that time any of the Rights Certificates shall not have been
countersigned, any successor Rights Agent may countersign such Rights
Certificates either in the name of the predecessor or in the name of the
successor Rights Agent; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
(b) In case at any time the name of the Rights Agent shall be changed
and at such time any of the Rights Certificates shall have been countersigned
but not delivered, the Rights Agent may adopt the countersignature under its
prior name and deliver Rights Certificates so countersigned; and in case at that
time any of the Rights Certificates shall not have been countersigned, the
Rights Agent may countersign such Rights Certificates either in its prior name
or in its changed name; and in all such cases such Rights Certificates shall
have the full force provided in the Rights Certificates and in this Agreement.
Section 20. Duties of Rights Agent. The Rights Agent undertakes the
----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Rights Certificates,
by their acceptance thereof, shall be bound:
(a) The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.
(b) Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter
(including, without limitation, the identity of any Acquiring Person and the
determination of "current market price") be proved or established by the Company
prior to taking or suffering any action hereunder, such fact or matter (unless
other evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established by a certificate signed by the
Chairman of the Board, the President, any Vice President, the Treasurer, any
Assistant
38
<PAGE>
Treasurer, the Secretary or any Assistant Secretary of the Company and delivered
to the Rights Agent; and such certificate shall be full authorization to the
Rights Agent for any action taken or suffered in good faith by it under the
provisions of this Agreement in reliance upon such certificate.
(c) The Rights Agent shall be liable hereunder only for its own
negligence, bad faith or willful misconduct.
(d) The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Rights
Certificates or be required to verify the same (except as to its
countersignature on such Rights Certificates), but all such statements and
recitals are and shall be deemed to have been made by the Company only.
(e) The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Rights Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Rights Certificate; nor shall it
be responsible for any adjustment required under the provisions of Section 11 or
Section 13 hereof or responsible for the manner, method or amount of any such
adjustment or the ascertaining of the existence of facts that would require any
such adjustment (except with respect to the exercise of Rights evidenced by
Rights Certificates after actual notice of any such adjustment); nor shall it by
any act hereunder be deemed to make any representation or warranty as to the
authorization or reservation of any shares of Common Stock or Preferred Stock to
be issued pursuant to this Agreement or any Rights Certificate or as to whether
any shares of Common Stock or Preferred Stock will, when so issued, be validly
authorized and issued, fully paid and nonassessable.
(f) The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.
39
<PAGE>
(g) The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, the President, any Vice President, the Secretary, any
Assistant Secretary, the Treasurer or any Assistant Treasurer of the Company,
and to apply to such officers for advice or instructions in connection with its
duties, and it shall not be liable for any action taken or suffered to be taken
by it in good faith in accordance with instructions of any such officer.
(h) The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from
acting in any other capacity for the Company or for any other legal entity.
(i) The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct; provided, however, reasonable care was exercised in the
-------- -------
selection and continued employment thereof.
(j) No provision of this Agreement shall require the Rights Agent to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of its rights if
there shall be reasonable grounds for believing that repayment of such funds or
adequate indemnification against such risk or liability is not reasonably
assured to it.
(k) If, with respect to any Rights Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate attached to the form of
assignment or form of election to purchase, as the case may be, has either not
been completed or indicates an affirmative response to clause 1 and/or 2
thereof, the Rights Agent shall not take any further action with respect to such
40
<PAGE>
requested exercise of transfer without first consulting with the Company.
Section 21. Change of Rights Agent. The Rights Agent or any
----------------------
successor Rights Agent may resign and be discharged from its duties under this
Agreement upon thirty (30) days' notice in writing mailed to the Company, and to
each transfer agent of the Common Stock and Preferred Stock, by registered or
certified mail, and to the holders of the Rights Certificates by first-class
mail. The Company may remove the Rights Agent or any successor Rights Agent
upon thirty (30) days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock and Preferred Stock, by registered or certified mail, and to the
holders of the Rights Certificates by first-class mail. If the Rights Agent
shall resign or be removed or shall otherwise become incapable of acting, the
Company shall appoint a successor to the Rights Agent. If the Company shall
fail to make such appointment within a period of thirty (30) days after giving
notice of such removal or after it has been notified in writing of such
resignation or incapacity by the resigning or incapacitated Rights Agent or by
the holder of a Rights Certificate (who shall, with such notice, submit his
Rights Certificate for inspection by the Company), then any registered holder of
any Rights Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether
appointed by the Company or by such a court, shall be (a) a corporation
organized and doing business under the laws of the United States or of the
Commonwealth of Pennsylvania (or of any other state of the United States so long
as such corporation is authorized to do business as a banking institution in the
Commonwealth of Pennsylvania), in good standing, having a principal office in
the Commonwealth of Pennsylvania, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or examination by
federal or state authority and which has at the time of its appointment as
Rights Agent a combined capital and surplus of at least $100,000,000 or (b) an
affiliate of a corporation described in clause (a) of this sentence. After
appointment, the successor Rights Agent shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named as Rights
Agent without further act or deed; but the predecessor Rights Agent shall
deliver and transfer to the successor Rights Agent any property at the time held
by it hereunder, and execute and deliver any further assurance, conveyance, act
or deed necessary for the purpose. Not
41
<PAGE>
later than the effective date of any such appointment, the Company shall file
notice thereof in writing with the predecessor Rights Agent and each transfer
agent of the Common Stock and the Preferred Stock, and mail a notice thereof in
writing to the registered holders of the Rights Certificates. Failure to give
any notice provided for in this Section 21, however, or any defect therein,
shall not affect the legality or validity of the resignation or removal of the
Rights Agent or the appointment of the successor Rights Agent, as the case may
be.
Section 22. Issuance of New Rights Certificates. Notwithstanding any
-----------------------------------
of the provisions of this Agreement or of the Rights to the contrary, the
Company may, at its option, issue new Rights Certificates evidencing Rights in
such form as may be approved by the Board to reflect any adjustment or change in
the Purchase Price and the number or kind or class of shares or other securities
or property purchasable under the Rights Certificates made in accordance with
the provisions of this Agreement. In addition, in connection with the issuance
or sale of shares of Common Stock following the Distribution Date and prior to
the redemption or expiration of the Rights, the Company (a) shall, with respect
to shares of Common Stock so issued or sold pursuant to the exercise of stock
options or under any employee plan or arrangement, or upon the exercise,
conversion or exchange of securities hereinafter issued by the Company, and (b)
may, in any other case, if deemed necessary or appropriate by the Board, issue
Rights Certificates representing the appropriate number of Rights in connection
with such issuance or sale; provided, however, that (i) no such Rights
-------- -------
Certificate shall be issued if, and to the extent that, the Company shall be
advised by counsel that such issuance would create a significant risk of
material adverse tax consequences to the Company or the Person to whom such
Rights Certificate would be issued, and (ii) no such Rights Certificate shall be
issued if, and to the extent that, appropriate adjustment shall otherwise have
been made in lieu of the issuance thereof.
Section 23. Redemption and Termination.
--------------------------
(a) The Board may, at its option, at any time prior to the earlier of
(i) the close of business on the tenth day following the Stock Acquisition Date
(or, if the Stock Acquisition Date shall have occurred prior to the Record Date,
the close of business on the tenth day following the Record Date), or (ii) the
Expiration Date, redeem all but not less than all of the then outstanding Rights
at
42
<PAGE>
a redemption price of $.05 per Right, as such amount may be appropriately
adjusted to reflect any stock split, stock dividend or similar transaction
occurring after the date hereof (such redemption price being hereinafter
referred to as the "Redemption Price"); provided, however, that if, following
-------- -------
the occurrence of a Stock Acquisition Date and following the expiration of the
right of redemption hereunder but prior to any Triggering Event, (A) a Person
who is an Acquiring Person shall have transferred or otherwise disposed of a
number of shares of Common Stock in one transaction or series of transactions,
not directly or indirectly involving the Company or any of its Subsidiaries,
which did not result in the occurrence of a Triggering Event such that such
Person is thereafter a Beneficial Owner of 10% or less of the outstanding shares
of Common Stock, (B) there are no other Persons, immediately following the
occurrence of the event described in clause (A), who are Acquiring Persons, and
(C) the Board shall so approve, then the right of redemption shall be reinstated
and thereafter be subject to the provisions of this Section 23. Notwithstanding
the foregoing, the Board may not redeem any Rights following its declaration
that any Person is an Adverse Person. The Company may, at its option, pay the
Redemption Price in cash, shares of Common Stock (based on the "current market
price", as defined in Section 11(d)(i) hereof, of the shares of Common Stock at
the time of redemption) or any other form of consideration deemed appropriate by
the Board. Notwithstanding anything contained in this Agreement to the
contrary, the Rights shall not be exercisable after the first occurrence of a
Section 11(a)(ii) Event until such time as the Company's right of redemption
hereunder has expired.
(b) Immediately upon the action of the Board ordering the redemption
of the Rights, evidence of which shall have been filed with the Rights Agent and
without any further action and without any notice, the right to exercise the
Rights will terminate and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price for each Right so held. Promptly after
the action of the Board ordering the redemption of the Rights, the Company shall
give notice of such redemption to the Rights Agent and the holders of the then
outstanding Rights by mailing such notice to all such holders at each holder's
last address as it appears upon the registry books of the Rights Agent or, prior
to the Distribution Date, on the registry books of the Transfer Agent for the
Common Stock. Any notice which is mailed in the manner herein provided shall be
deemed given, whether or not the holder receives the notice. Each such
43
<PAGE>
notice of redemption will state the method by which the payment of the
Redemption Price will be made.
Section 24. Notice of Certain Events.
------------------------
(a) In case the Company shall propose, at any time after the
Distribution Date, (i) to pay any dividend payable in stock of any class to the
holders of Preferred Stock or to make any other distribution to the holders of
Preferred Stock (other than a regular quarterly cash dividend out of earnings or
retained earnings of the Company), or (ii) to offer to the holders of Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, or (iii) to effect any reclassification of its Preferred
Stock (other than a reclassification involving only the subdivision of
outstanding shares of Preferred Stock), or (iv) to effect any consolidation or
merger into or with any other Person (other than a Subsidiary of the Company in
a transaction which complies with Section 11(o) hereof), or to effect any sale
or other transfer (or to permit one or more of its Subsidiaries to effect any
sale or other transfer), in one transaction or a series of related transactions,
of more than 50% of the assets, cash flow or earning power of the Company and
its Subsidiaries (taken as a whole) to any other Person or Persons (other than
the Company and/or any of its Subsidiaries in one or more transactions each of
which complies with Section 11(o) hereof), or (v) to effect the liquidation,
dissolution or winding up of the Company, then, in each such case, the Company
shall give to each holder of a Rights Certificate, to the extent feasible and in
accordance with Section 25 hereof, a notice of such proposed action, which shall
specify the record date for the purposes of such stock dividend, distribution of
rights or warrants, or the date on which such reclassification, consolidation,
merger, sale, transfer, liquidation, dissolution, or winding up is to take place
and the date of participation therein by the holders of the shares of Preferred
Stock, if any such date is to be fixed, and such notice shall be so given in the
case of any action covered by clause (i) or (ii) above at least twenty (20) days
prior to the record date for determining holders of the shares of Preferred
Stock for purposes of such action, and in the case of any such other action, at
least twenty (20) days prior to the date of the taking of such proposed action
or the date of participation therein by the holders of the shares of Preferred
Stock whichever shall be the earlier.
44
<PAGE>
(b) In case any of the events set forth in Section 11(a)(ii) hereof
shall occur, then, in any such case, (i) the Company shall as soon as
practicable thereafter give to each holder of a Rights Certificate, to the
extent feasible and in accordance with Section 25 hereof, a notice of the
occurrence of such event, which shall specify the event and the consequences of
the event to holders of Rights under Section 11(a)(ii) hereof, and (ii) all
references in the preceding paragraph to Preferred Stock shall be deemed
thereafter to refer to Common Stock and/or, if appropriate, other securities.
Section 25. Notices. Notices or demands authorized by this Agreement
-------
to be given or made by the Rights Agent or by the holder of any Rights
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:
Lukens Inc.
50 South First Avenue
Coatesville, Pennsylvania 19320
Attention: Secretary
Subject to the provisions of Section 21, any notice or demand authorized by this
Agreement to be given or made by the Company or by the holder of any Rights
Certificate to or on the Rights Agent shall be sufficiently given or made if
sent by first-class mail, postage prepaid, addressed (until another address is
filed in writing with the Company) as follows:
Mellon Bank (East) N.A.
P.O. Box 444
Pittsburgh, Pennsylvania 15230
Attention: Corporate Trust Department
Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Rights Certificate (or, if
prior to the Distribution Date, to the holder of certificates representing
shares of Common Stock) shall be sufficiently given or made if sent by first-
class mail, postage prepaid, addressed to such holder at the address of such
holder as shown on the registry books of the Company.
Section 26. Supplements and Amendments. Prior to the Distribution
--------------------------
Date and subject to the penultimate sentence of this Section 26, the Company and
the Rights
45
<PAGE>
Agent shall, if the Company so directs, supplement or amend any provision of
this Agreement without the approval of any holders of certificates representing
shares of Common Stock. From and after the Distribution Date and subject to the
penultimate sentence of this Section 26, the Company and the Rights Agent shall,
if the Company so directs, supplement or amend this Agreement without the
approval of any holders of Rights Certificates in order (i) to cure any
ambiguity, (ii) to correct or supplement any provision contained herein which
may be defective or inconsistent with any other provisions herein, (iii) to
shorten or lengthen any time period hereunder, or (iv) to change or supplement
the provisions hereunder in any manner which the Company may deem necessary or
desirable and which shall not adversely affect the interests of the holders of
Rights Certificates (other than an Acquiring Person, an Adverse Person or an
Affiliate or Associate of an Acquiring Person or an Adverse Person); provided,
--------
this Agreement may not be supplemented or amended to lengthen, pursuant to
clause (iii) of this sentence, (A) a time period relating to when the Rights may
be redeemed at such time as the Rights are not then redeemable, or (B) any other
time period unless such lengthening is for the purpose of protecting, enhancing
or clarifying the rights of, and/or the benefits to, the holders of Rights
(other than an Acquiring Person, an Adverse Person or an Affiliate or Associate
of an Acquiring Person or an Adverse Person). Upon the delivery of a certificate
from an appropriate officer of the Company which states that the proposed
supplement or amendment is in compliance with the terms of this Section 26, the
Rights Agent shall execute such supplement or amendment. Notwithstanding
anything contained in this Agreement to the contrary, no supplement or amendment
shall be made which changes the Redemption Price, the Final Expiration Date, the
Purchase Price or the number of one one-hundredths of a share of Preferred Stock
for which a Right is exercisable. Prior to the Distribution Date, the interests
of the holders of Rights shall be deemed coincident with the interests of the
holders of Common Stock.
Section 27. Successors. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
Section 28. Determinations and Actions by the Board of Directors,
-----------------------------------------------------
etc. For all purposes of this Agreement, any calculation of the number of
shares of Common
46
<PAGE>
Stock outstanding at any particular time, including for purposes of determining
the particular percentage of such outstanding shares of Common Stock of which
any Person is the Beneficial Owner, shall be made in accordance with the last
sentence of Rule 13d-3(d)(1)(i) of the General Rules and Regulations under the
Exchange Act. The Board (with, where specifically provided for herein, the
concurrence of the Outside Directors) or, where specifically provided for
herein, the Outside Directors, shall have the exclusive power and authority to
administer this Agreement and to exercise all rights and powers specifically
granted to the Board (with, where specifically provided for herein, the
concurrence of the Outside Directors) or, when specifically provided for herein,
the Outside Directors. In addition, the Board shall have the exclusive power and
authority as may be necessary or advisable in the administration of this
Agreement, including, without limitation, the right and power to (i) interpret
the provisions of this Agreement, and (ii) make all determinations deemed
necessary or advisable for the administration of this Agreement (including a
determination to redeem or not redeem the Rights, to declare that a Person is an
Adverse Person or to amend the Agreement). All such actions, calculations,
interpretations and determinations (including, for purposes of clause (y) below,
all omissions with respect to the foregoing) which are done or made by the Board
(with, where specifically provided for herein, the concurrence of the Outside
Directors) or, where provided for herein, the Outside Directors, in good faith,
shall (x) be final, conclusive and binding on the Company, the Rights Agent, the
holders of the Rights and all other parties, and (y) not subject the Board or
the Outside Directors to any liability to the holders of the Rights.
Section 29. Benefits of this Agreement. Nothing in this Agreement
--------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Rights Certificates (and, prior to the
Distribution Date, registered holders of the Common Stock) any legal or
equitable right, remedy or claim under this Agreement; but this Agreement shall
be for the sole and exclusive benefit of the Company, the Rights Agent and the
registered holders of the Rights Certificates (and, prior to the Distribution
Date, registered holders of the Common Stock).
Section 30. Severability. If any term, provision, covenant or
------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be
47
<PAGE>
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated; provided,
--------
however, that notwithstanding anything in this Agreement to the contrary, if any
- -------
such term, provision, covenant or restriction is held by such court or authority
to be invalid, void or unenforceable and the Board determines in its good faith
judgment that severing the invalid language from this Agreement would adversely
affect the purpose or effect of this Agreement, the right of redemption set
forth in Section 23 hereof shall be reinstated and shall not expire until the
close of business on the tenth day following the date of such determination by
the Board. Without limiting the foregoing, if any provision requiring that a
determination be made by less than the entire Board (or with the concurrence of
a group of directors consisting of less than the entire Board) is held by a
court of competent jurisdiction or other authority to be invalid, void or
unenforceable, such determination shall then be made by the Board in accordance
with applicable law and the Company's certificate of incorporation and by-laws.
Section 31. Governing Law. This Agreement, each Right and each
-------------
Rights Certificate issued hereunder shall be deemed to be a contract made under
the laws of the State of Delaware and for all purposes shall be governed by and
construed in accordance with the laws of such state applicable to contracts made
and to be performed entirely within such state.
Section 32. Counterparts. This Agreement may be executed in any
------------
number of counterparts and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 33. Descriptive Headings. Descriptive headings of the
--------------------
several Sections of this Agreement are inserted for convenience only and shall
not control or affect the meaning or construction of any of the provisions
hereof.
48
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and their respective corporate seals to be hereunto affixed and
attested, all as of the day and year first above written.
Attest: LUKENS INC.
By /s/ Frederick M. Myers
------------------------------------
Name: Frederick M. Myers
Title:Vice Chairman of the Board
Attest: MELLON BANK (EAST) N.A.
By /s/ Sally Jones
------------------------------------
Name: Sally Jones
Title:Vice President
49
<PAGE>
LUKENS INC. 1996 Form 10-K: EXHIBIT 10.18
PNC Bank, N.A. 215 585 5622 Tel Daniel K. Fitzpatrick, CPA
1600 Market Street 215 585 5972 Fax Vice President
Philadelphia, PA 19103
December 5, 1996
PNC Bank
John C. van Roden, Jr.
Senior Vice President & CFO
Lukens Inc.
50 South First Avenue
Coatesville, PA 19320-0911
RE: Amended and Restated Credit Agreement, Dated as of April 22, 1992, and
Amended and Restated as of September 30, 1992 and the First Amendment
To Loan Documents dated January 15, 1995 among Lukens Inc. and Lukens
Steel Company, as the Borrowers, Certain Commercial Lending
Institutions, The Toronto-Dominion Bank and NBD Bank, N.A., as the co-
agents and PNC Bank, National Association, as the Administrative Agent
------------------------
("Revolver")
------------
Dear John:
As Administrative Agent, I am pleased to inform you that Luken's Extension
Request has received unanimous consent by the Lukens's Bank Group. As required
under Section 2.7.2 of the "Revolver", each Lender notified the Administrative
Agent of its consent within 45 days of receiving the Extension Request.
As a result of these actions under Section 2.7, the "Revolving Loan Commitment
Termination Date" and the "Stated Maturity Date" are hereby amended to January
15, 2002. With the completion of this extension, the next anniversary of the
Effective Date is January 15, 1998. I have attached a photocopy of each
Lender's notification of their consent to the Extension Request for your
records.
We appreciate the opportunity to continue working with Lukens. Best wishes for
happy and healthy holidays to you and your family and all of the Lukens
organization.
Best regards,
/s/ Daniel K. Fitzpatrick
- -------------------------
Daniel K. Fitzpatrick
Vice President
cc: The Toronto Dominion Bank
NBD Bank, N.A.
CoreStates Bank N.A.
Bank of America Illinois
Mellon Bank, N.A.
First Fidelity Bank, N.A.
Morgan Guaranty Trust Company of New York
Wachovia Bank of Georgia, N.A.
Trust Company Bank
<PAGE>
Lukens Inc. 1996 Form 10-K: Exhibit 11
Lukens Inc.
Computation of Earnings Per Common Share
for the 52 weeks ended December 28, 1996, and December 30, 1995, and the
53 weeks ended December 31, 1994
(Dollars and shares in thousands except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
--------- --------- ---------
<S> <C> <C> <C>
Primary Earnings (Loss) per Common Share
Net earnings (loss) applicable to common stock
Net earnings (loss) $ (28,411) 34,014 22,178
ESOP dividend requirements
Preferred stock dividends declared (2,338) (2,406) (2,569)
Tax benefit on dividends - unallocated shares 344 444 544
---------- --------- ----------
Net earnings (loss) applicable to common stock $ (30,405) 32,052 20,153
---------- --------- ----------
Weighted average number of common shares and equivalents outstanding
Weighted average number of common shares outstanding 14,784 14,696 14,582
Common stock equivalents:
Stock options, assuming exercised at average market price - * 129 161
---------- --------- ----------
Weighted average number of common shares and equivalents outstanding 14,784 14,825 14,743
---------- --------- ----------
Primary Earnings (Loss) per Common Share $ (2.06) 2.16 1.37
========== ========= ==========
Fully Diluted Earnings (Loss) per Common Share
Net earnings (loss) applicable to common stock
Net earnings (loss) $ - 34,014 22,178
Incremental cash contribution to the ESOP assuming conversion of
preferred stock to common - (902) (964)
Tax benefit on the incremental cash contribution - 316 337
---------- --------- ----------
Net earnings (loss) applicable to common stock $ - 33,428 21,551
---------- --------- ----------
Weighted average number of common shares and equivalents outstanding
Weighted average number of common shares outstanding - 14,696 14,582
Common stock equivalents:
Stock options, assuming exercised at greater of ending or
average market price - 140 161
Series B ESOP preferred stock - 1,509 1,588
---------- --------- ----------
Weighted average number of common shares and equivalents outstanding - 16,345 16,331
---------- --------- ----------
Fully Diluted Earnings (Loss) per Common Share $ (2.06)** 2.05 1.32
========== ========= ==========
</TABLE>
* Not applicable because it would result in an antidilutive calculation.
** Fully diluted calculation is not presented because it is antidilutive.
<PAGE>
LUKENS INC. 1996 FORM 10-K: EXHIBIT 21
LUKENS INC.
SUBSIDIARIES
December 28, 1996
Lukens Inc. has 14 direct or indirect wholly-owned subsidiaries:
<TABLE>
<CAPTION>
State or Other
Jurisdiction of
Incorporation
---------------
<S> <C>
Brandywine Valley Railroad Company Delaware
Encoat-North Arlington, Inc. Delaware
Energy Coatings Company Delaware
LI Acquisition Corporation Delaware
LI Service Company Pennsylvania
Lukens Development Corporation Delaware
Lukens Foreign Sales Corporation Barbados
Lukens Management Corporation Pennsylvania
Lukens Steel Company Pennsylvania
Pennock Corp. Delaware
Sponsor's Plan Asset Management, Inc. Delaware
Washington Specialty Metals Corporation Illinois
Washington Specialty Metals Inc. Canada
Washington Steel Corporation/a/ Delaware
</TABLE>
a. Effective December 29, 1996, the Washington Steel Corporation was merged into
the Lukens Steel Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM LUKENS INC.
FINANCIAL STATEMENTS FOR THE FIFTY-TWO WEEKS ENDED DECEMBER 28,1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 10,282
<SECURITIES> 0
<RECEIVABLES> 100,106
<ALLOWANCES> 7,750
<INVENTORY> 148,925
<CURRENT-ASSETS> 266,656
<PP&E> 953,753
<DEPRECIATION> 420,427
<TOTAL-ASSETS> 888,751
<CURRENT-LIABILITIES> 167,498
<BONDS> 248,695
13,427
0
<COMMON> 158
<OTHER-SE> 244,484
<TOTAL-LIABILITY-AND-EQUITY> 888,751
<SALES> 970,320
<TOTAL-REVENUES> 970,320
<CGS> 915,113
<TOTAL-COSTS> 915,113
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 11,348
<INTEREST-EXPENSE> 16,735
<INCOME-PRETAX> (42,788)
<INCOME-TAX> (14,377)
<INCOME-CONTINUING> (28,411)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28,411)
<EPS-PRIMARY> (2.06)
<EPS-DILUTED> (2.06)
</TABLE>
